Modi sarkar economic reforms/governance performance thread

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Something Even the terrorists couldn't achieve in 2008

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[velu]

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ஆளே இல்லாத கடைல யாருக்குப்பா டீ ஆத்தற ...??? 

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[rkt.india]

On 8/7/2019 at 6:19 PM, mishra said:

Growth forecast down by 0.1% ie 6.9% from 7%. Dont know much but India can do with little bit of Inflation.

 

BTW  would like growth forecasters to allways get it right. This 5% -6% isnt right and looks more of a shoddy job They should be accurate to a level like 5.45%-5.5%

Black money is important to keep consumption high in a country with just 2000 dollars per capita income.  Now govt is getting more taxes but are they using it well? money should be in the pockets of people and not in the safe vaults of RBI or govt.

Edited August 10, 2019 by rkt.india

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TOO LITTLE, TOO LATE

India’s economic slump is far too deep to be tackled with mere tinkering of interest rates

By Rahul MenonAugust 8, 2019

 

The Indian economy is facing one of its most challenging times in years, and policymakers are responding to the crisis through monetary measures, such as tweaking key interest rates. But how far can this go in reviving growth?

Yesterday (Aug. 7), the Reserve Bank of India (RBI), in its bi-monthly monetary policy meeting, lowered its growth projection for the current financial year to 6.9%, from its earlier forecast of 7%. India has already lost its tag as the world’s fastest-growing major economy after GDP growth in the March quarter of financial year 2019 slipped to 5.8%.

Taking note of the sagging growth, the central bank cut the repo rate—at which it lends to commercial banks—by 35 basis points to 5.4%, the lowest level since 2010. (A basis point is one-hundredth of a percentage point.) This marks the fourth consecutive time the key interest rate has been slashed since February 2019.

The current economic slowdown has been widely attributed to tepid demand.

The reasoning is that lower interest rates will reduce the cost of loans and stimulate falling consumption. The current economic slowdown has been widely attributed to tepid demand, which has, in the past been the key driver of growth.

Weak consumption is evidenced by muted demand for automobiles, air travel, and fast-moving consumer goods (FMCG) in recent times. The automobile industry, in particular, has witnessed a long-drawn slowdown, resulting in significant job losses.

One reason for the weak demand is the crisis in the shadow banking sector, or the non-banking financial companies (NBFCs). The lack of credit for big-ticket spending may have played a significant role in the slump in automobile sales, for instance. The RBI is, therefore, attempting to increase liquidity flows to NBFCs by allowing banks to invest more in shadow banks.

It seems appropriate that a crisis, which has its origins in the financial system, should be solved through monetary measures. However, the dynamics of a modern economy may mean that monetary policy moves alone will not be enough, and fiscal policy tools, too, will have to be deployed to deal with the situation.

Echoes of 2008

Parallels of today’s economic situation can be seen in the US experience of 2008. That year, the recession began in the mortgage industry. The inability of consumers to repay their loans resulted in financial stress for the mortgage firms. This later spread to all major banks and financial institutions that had invested in assets backed by these mortgages.

A good part of monetary policy was initially focused on introducing substantial amounts of liquidity into the system. The official interest rate was reduced till it hit zero, and could be reduced no more.

Failing banks were propped up through interventions by the US Federal Reserve. Monetary policy took the form of large-scale “quantitative easing.” The Federal Reserve bought stressed assets and securities from banks by simply “creating” money, in an attempt to increase liquidity and clean up banks’ balance sheets and get them to lend again.

Ultimately, fiscal policy measures were needed for a full recovery.

Yet, these measures were inadequate. Interest rates remained close to zero for years, with the economy being slow to respond. Quantitative easing might have helped limit the extent of the recession, but did not revive growth significantly. Ultimately, fiscal policy measures were needed for a full recovery.

Fall in expectations

The reason why financial crises cannot always be solved through monetary and financial measures alone is because of the knock-on effect unemployment can have in an economy.

The current fall in demand for automobiles in India has led to about 350,000 workers losing their jobs since April. These workers may not be consumers of cars, but they will reduce their purchases of clothing, and other consumer durables, for instance.

And those who otherwise earn their incomes from sale of vehicles, such as owners of showrooms, retailers etc, might choose not to purchase cars due to their businesses facing reduced demand, even if interest rates are low, and NBFCs resume lending.

Unemployment can have a “multiplier” effect, on various spheres of the economy. On seeing reduced demand, manufacturers and business-owners might reduce their expectations of future profits, and might cut back on investment plans.

In financial year 2018, unemployment in India stood at a 45-year high of 6.1%. An increase in the availability of credit to consumers, therefore, may not necessarily be enough to induce spending again.

The current crisis compounds the problem of record unemployment.

In the words of John Maynard Keynes, monetary policy in the face of serious economic crisis becomes similar to “pushing on a string,” unable to exert any effect on demand.

The need for fiscal policy

To be sure, there are differences between the 2008 crisis and India’s current problems. For one, the US suffered negative growth rates, while India is still growing, albeit at slower rates. Secondly, Indian interest rates still have sufficient space for further reductions, unlike US rates which reached near zero, and could not be reduced further.

Yet there are grounds to be concerned. The current crisis compounds the problem of record unemployment the economy is already facing.

It is imperative that fiscal policy is used, and demand be revived, through public spending to shore up the economy.

Adhering to a strict fiscal deficit target may prove to be counter-productive in the face of widespread reduction in demand. The world has enough experience to see how crises that start in financial sectors can rapidly spread outwards, and it is imperative to take all steps to combat the problems the economy currently faces.

We welcome your comments at

ideas.india@qz.com. 

 

https://qz.com/india/1683656/rbis-repo-rate-cut-cheaper-loans-wont-revive-indias-economy/

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Stocks

India is so far the worst performing market of 2019

Radhika Merwin | Updated on August 09, 2019 Published on August 09, 2019

 

A slowdown in the economy and weak corporate earnings growth could keep Indian markets under pressure for some time to come

BL Research Bureau

Amid growing concerns on India’s economic growth and weak corporate earnings, the Indian stock market has been the worst performing market so far in 2019. The higher tax surcharge on foreign portfolio investors (FPIs) announced in the Budget, further pulled the rug from under investors over the past month.

 

After delivering a nothing-to-write-home-about returns of 7 per cent in calendar 2018, the Sensex has delivered a muted 3.5 per cent returns so far in 2019. The Nifty, that delivered 4 per cent return in 2018, posted a modest 1.5 per cent return in 2019 so far.

In contrast, other emerging markets have delivered healthy returns — Brazil (Bovespa Index 17 per cent), and China (Shanghai Composite Index 12 per cent). The US market’s performance has stood out — with S&P Index and NASDAQ delivering 15 per cent and 18 per cent respectively.

Other global indices — FTSE and DAX have also fared better than Indian market delivering 7 per cent and 11 per cent respectively.

FPI selling

Since 2012, FPIs have been net buyers in the Indian equity market. But the flows have been moderating since 2015.After annual net inflows of about ₹1-1.3 lakh crore between 2012 and 2014, flows dwindled to ₹17,000-20,000 crore in 2015 and 2016. In 2017, FPI inflows improved — they were net buyers to the tune of ₹51,000 crore. But in 2018, FPIs turned net sellers — net outflows of ₹33,000 crore.

Also read: Super-rich cess on FPIs will account only for 1% of estimated mop-up

In 2019, barring the month of January, FPIs have been net buyers into Indian equity upto June. In July and August (upto August 9), FPIs have turned net sellers — net outflows amounting to ₹22,000 crore so far. The budget proposal of tax surcharge on FPIs spooked investors, and there are now news reports that suggest the government may re-consider this move.

Despite the outflows in the past month, FPIs are still net buyers to the tune of ₹56,000 crore in 2019.

Valuation

Indian indices are trading just near around their 10-year historical averages.

Trading at about 17 times its one-year forward earnings, the Nifty is slightly above its historical average of about 16 times. It has traded at lofty levels 20-21 times in 2015. But in light of the weak show put up by India Inc so far, it is unlikely that valuations would move up significantly.

Earnings growth continues to be weak for India Inc in the quarter ended June 2019 — with profit (excluding banks and finance companies) dropping by 6-odd per cent.

 

 

Given a weak domestic demand and slowing global growth, it is unlikely that earnings will move up significantly in the ensuing quarter. Nifty earnings have been muted in the last few years. After growing by 7 per cent in calender 2018, Bloomberg estimates earnings growth of a much higher 25 per cent in the current year.

While a low base can optically aid growth in profit, earnings growth can disappoint expectations — leading to some more profit booking from the Indian market.

 

https://www.thehindubusinessline.com/markets/stock-markets/india-is-so-far-the-worst-performing-market-of-2019/article28921780.ece

 

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Hard times: No end in sight for economic woes

By: Shobhana Subramanian |

Updated: July 29, 2019 7:14:51 AM

With neither consumption demand nor investment expected to pick up soon, there’s more pain ahead

At HUL, the management suggested no triggers for an immediate demand recovery, citing the slow rhythm of the economy and persistent channel liquidity issues.

The most telling statement during earnings season usually comes from R Shankar Raman, director, Larsen &Toubro. For nearly a dozen quarters now, Shankar Raman has been saying that private sector capex is some time away. This time around too, he was as pessimistic, estimating it could take anywhere between 12-18 months before the private sector starts adding capacity.

That is pretty much the tone. The Asian Paints management believes the environment is challenging and is keeping its fingers crossed the monsoon is a good one. At HUL, the management suggested no triggers for an immediate demand recovery, citing the slow rhythm of the economy and persistent channel liquidity issues. Tata Motors chief financial officer, PB Balaji expects ebit margins for the domestic business to see a marginal correction due to ‘market uncertainties’. Tata Motors reported a debilitating loss of Rs 3,679 crore for the three months to June, a reflection of the anaemic demand both at home and overseas.

 

If one was to ask whether the worst is over or whether there is more stress ahead, it would be safe to say it could get worse before it gets better. It is not easy to recover from a staggering Rs 4,800 crore loss that Vodafone/Idea posted, especially since this isn’t the first loss; at JSW Steel, consolidated profits plunged by over 50% year-on-year (y-o-y).

There is some expectation the environment will change in the second half of FY20, but the optimism seems largely misplaced. It’s possible though managements are merely making the right noises to keep the morale up. Because right now, it’s hard to see what exactly is going to trigger the revival. It can’t be consumption demand; the high frequency data isn’t pointing to a recovery just yet.

 

 

SIAM on Friday lowered the guidance for passenger vehicles from a growth of 3-5% to a de-growth of
2-3%; for CVs it trimmed the estimate from a10-12%increase to just 2-3%. The farm sector remains in deep distress as seen from the high and rising delinquencies at M&M Financial Services; the gross NPAs inched up 30% plus quarter-on-quarter (q-o-q) to 7.4% due to seasonal weaknesses, but analysts are convinced these will rise further given the sharp deterioration in the economic environment. In a worrying observation, analysts at Nomura noted that while historically, asset quality has had seasonality, a 30% q-o-q spike in GNPAs, coupled with a worsening economic situation, increasing rural stress and a weaker monsoon leads them to believe that the asset quality improvement cycle has peaked. Indeed, given the large number of ratings downgrades over the past three months it is clear the NPA cycle is far from peaking. That is a wake-up call to be heeded and already, analysts have started paring earnings; there are sure to be many more cuts before the season is over.

 

 

They have good reason to do so, because this slowdown isn’t going away in a hurry. Both the engines—private household consumption led by a deceleration in savings and accelerated government spending on the back of large deficits—may be sputtering. Prospects of more job cuts—1,700 at the Nissan factory—are going to hurt demand further. At Jubilant Foods, for instance, same-store sales grew just 4.1% y-o-y, slowing down from the 6% levels reported in 4QFY19. Credit flows to several sections of the economy have been cut off, with many of the NBFCs strapped for liquidity and some close to insolvency; while banks may be flush with funds, they are reluctant to lend, except to top-rated clients. That, then, excludes the vast majority of borrowers. A good example of this can be seen in HDFC Bank’s Q1FY20 loan growth, which at 17% y-o-y was the slowest in the past ten quarters. The lower growth is the result of a steep decline in corporate lending, slowdown in unsecured loans, and muted growth in auto and two-wheeler credit. Kotak Mahindra Bank (KMB) has also seen a moderation in loan growth; the book including Kotak Prime grew 15% y-o-y, given a sharp moderation in the vehicle segment, down 4% y-o-y. Additionally, corporate loans are seeing an economy-linked slowdown; they grew at about 9% y-o-y.

 

 

The Budget provided no stimulus whatsoever; in fact the total capex budgeted for 2019-20 is lower than it was last year. If demand does not pick up soon, manufacturers will find it hard to raise prices; at this point though, even bigger volumes would be helpful. At Maruti Suzuki, volumes fell 18% y-o-y during the quarter while at JSW Steel they fell 3% y-o-y. Also, given that there has been a fair bit of belt tightening these past couple of years—savings have been eked out from employee exits, efficient procurement of raw materials, less capex and better inventory management of working capital—it is hard to see much more taking place. A fall in input prices would, of course, come as a big boost to users, but not to producers.

 

 

Indeed, the India Inc spreadsheet is not a pretty sight. There may not be too many blotches of red, but most companies are struggling to hold on to their profits. Profits for a sample of 252 companies have fallen 14% y-o-y in Q1FY20. While managements have been working hard to rein in costs, margins are under pressure contracting 40 basis points y-o-y; excluding TCS and Reliance, revenues grew just 3.5% y-o-y while profits crashed 28% y-o-y. From telecom to two-wheelers and cars to consumer goods, there’s pain everywhere. We need to do more than pray.

 

https://www.financialexpress.com/opinion/economic-slowdown-is-not-going-away-anytime-soon-heres-why/1658873/

 

 

[Stan AF]

Scam

IL&FS scam: NCLT gives nod for govt to ban Deloitte, BSR for 5 years

The present govt is possibly keen to set an example to the others that however mighty they may be, the law should apply and companies must not use auditors to cover up their misdeeds.

• S. Mahadevan
• Saturday, August 10, 2019 - 17:38

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The National Company Law Tribunal (NCLT) has gone with the government in the case of imposing a ban on the two statutory auditors of IL&FS, Deloitte Haskins & Sells and BSR & Associates, a local affiliate of KPMG. Deloitte and KPMG are considered top auditing and consulting firms in the world and this action by the Indian government will certainly put a dent on their reputation. The present government is possibly keen to set an example to the others that however mighty they may be, the law should apply and companies must not use auditors to cover up their misdeeds.

In the present case, there was particular ruling at the NCLAT which went in favour of the two audit firms and the Department of Company Affairs filed this application before the NCLT requesting its approval to ban the two audit firms for five years as a penalty for their involvement in the ILFS Group scam.

The audit firms opposed this and took a position that the NCLT is not even authorised to adjudicate on this. NCLT rejected their claim and gave the green signal to the government to go ahead with its proposal to impose the ban. Now they will have to await the order of the NCLAT which has stayed an earlier order of the NCLT which permitted the government to prosecute the two audit firms.

 

The argument by Deloitte and BSR that they had already resigned as auditors and the particular clause 140 (5) of the Companies Act will apply only to existing auditors was not accepted by the Tribunal.  

The current move for imposing a ban has arisen out of a complaint at the Serious Fraud Investigation Office and after the investigation it did emerge that the two audit firms were fully aware of what was happening at IL&FS and IFIN and failed to alert the shareholders. The accusation is moneys were being lent to companies which had already defaulted and to circumvent the norms, the loans to these companies were routed through other group companies.

The counsels for Deloitte and BSR tried their best to argue on behalf of their clients, but the Tribunal would have none of it.

Meanwhile, the names of the new auditors for IL&FS and IFIN were also approved by the NCLT. Borkar & Mazumdar & Co and MM Chitale & Co are the audit firms suggested by the government for IL&FS and IFIN respectively.

Deloitte has reacted to this ruling by the NCLT saying it is unfortunate and that they will study and come up with the next steps to be taken.

 

https://www.thenewsminute.com/article/ilfs-scam-nclt-gives-nod-govt-ban-deloitte-bsr-5-years-107017

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Bottlenecks of Indian economy compounded by the policies of First Modi Government
 

Read more at:
https://bangaloremirror.indiatimes.com/bangalore/cover-story/bottlenecks-of-indian-economy-compounded-by-the-policies-of-first-modi-government/articleshow/70624190.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

 

Bottlenecks of Indian economy compounded by the policies of first Modi government

 

By Puja Mehra

The Indian economy has been declining for a while now, but the bottlenecks have been compounded by the policies of the first Modi government.

Dhiren Shah is running from pillar to post in search of a few lakh of rupees. If he doesn’t find it soon, he will have to let go of some of the staff at AIM Nonwovens, a Pune-based manufacturer of filtration systems and interior parts for cars. It’s a small company with an average monthly turnover of Rs 2 crore. Among the customers for its products are auto manufacturers such as Tata Motors and Ford, and buyers overseas.

 

“Our customers are seeing a massive slowdown in car sales, and have reduced production,” says Shah, managing director of AIM Nonwovens. “All was fine until a month-and-a-half ago, but now, orders have come to a screeching halt as supplies from our manufacturing unit are piling up in the inventories. We are unlikely to see an uptick in our orders in the next few months.”

No orders mean idling plants. Yet, despite lower revenues, loan repayments, wages and other fixed costs must be covered. Normally, a company with a sound trackrecord tides over such liquidity crises by borrowing from banks. But banks have limited their lending as well. Growth in lending by banks has been moderated for the second successive month to 12.5 per cent in May — its lowest since September 2018 — from 13.0 per cent in April.

The benefits announced precisely to help out small companies like Shah’s, such as interest rate subventions and schemes for restructuring loans, are not trickling down, he says. “For a company with assets of more than Rs 50 crore, it is becoming difficult for us to raise Rs 50 lakh.”

The liquidity crunch has become tighter because it’s no longer as easy to do business. AIM Nonwovens sought refunds of Rs 21 lakh for the Goods & Services Tax (GST) paid. But the claim is pending. “We’re told there has been a technical problem,” says Shah.

A total of Rs 1.75 crore that is due to him, is locked up at various levels of government red tape, says Shah, including a rejected claim for subsidy reimbursement of Rs 50 lakh under the Technological Upgradation Scheme.

Even as Shah struggles with the liquidity crunch, he has received a prosecution notice for a delay in payment of tax dues. “The government is not refunding the GST paid, and is sending notices for delayed tax payments to me, a regular taxpayer,” says Shah.

Auto ancillary companies like Shah’s are shedding manpower and reducing the number of hours for which the plants are run. The entire sector is, in fact, reeling under the impact of a severe sales slowdown and, consequently, huge job cuts.
 

Car sales have slumped and agricultural growth has collapsed — yet the government is slow to respond

The Society of Indian Automobile Manufacturers (SIAM) reports that sales of all types of vehicles declined by 12.35 per cent to 60,85,406 units in April-June 2019, against 69,42,742 units sold in the same period the previous year. At the same time, passenger vehicle sales have been declining for almost a year now.

The country’s biggest car-maker, Maruti Suzuki, reported a 36 per cent annual decline in car sales for the month of July. Hyundai sales fell by 10 per cent.

To manage the impact of this sales slump, vehicle retailers, too, are reducing manpower. Dealerships have cut around two lakh jobs in the last three months, according to the Federation of Automobile Dealers Associations (FADA). These job cuts are over and above the 32,000 that were axed when 286 showrooms closed across 271 cities in the 18-month period ending April 2019.

Reduced vehicle production by companies, such as Tata Motors, has spread the pain to the ancillary industries in the auto sector. In and around Jamshedpur, for instance, some 30 steel companies are reported to be on the verge of closure. About a dozen have already downed their shutters after the Tata Motors manufacturing plant ran for only 15 days a month in the last two months, remaining shut for the rest of the time.

“The auto sector [impacts] 100 ancillary industries,” says Dr Charan Singh, economist, nonexecutive chairman, Punjab and Sind Bank, and CEO of EGROW Foundation, a Noida-based thinkank. “When it stagnates, these 100 industries slow down as well. The automobile industry is holding 400 per cent higher inventory than normal times in select automobile segments. So, a large number of people’s incomes are getting impacted.”

The housing sector is similarly linked with nearly 300 ancillaries, which suffer if housing sales stagnate. The housing crisis of 2007-2008 in the US had taken a decade to recover. In India, developers estimate that over 12.76 lakh houses are lying unsold across India’s top 30 cities.

The inventory build-up is as high as 80 months in Kochi, 59 months in Jaipur, 55 months in Lucknow and 72 months in Chennai. What this means is that unsold homes could take up to five to seven years to find buyers in these cities.

The problems are not new. The economy has been struggling with an investments and manufacturing slowdown since 2012. Exports growth been stagnant since 2014. The farm sector has been largely unremunerative.

In the three years from 2016-17 to 2018-19, GDP growth was at 8.2 per cent, 7.2 per cent and 6.8 per cent respectively. In the four quarters from April-June 2018 to January-March 2019, GDP growth slowed to 8.0 per cent, 7.0 per cent and 6.6 per cent. This shows that in the course of four quarters, GDP growth slowed by 2.2 percentage points — which is a significant loss of economic momentum.

But as HDFC chairman Deepak Parekh noted, while speaking of the “distinct slowdown” in the economy to his company’s shareholders at the annual general meeting last Friday, the pain has spread, and is now affecting even consumption spending.
 

Finance Minister Nirmala Sitharaman with Uday Kotak, MD of Kotak Mahindra Bank, during the National Council Meeting with members of CII in New Delhi on Friday

Latest data from the Reserve Bank of India shows that in the first half of 2019 — from January to June — retail personal loans disbursement grew at the slowest rate in five years. Disbursement slowed from 7.7 per cent in the same period the previous year, to 7.3 per cent in this period.

Business leaders and the stock market (that has lost nearly 10 per cent in value since it hit a record high just after the 2019 elections results were declared) had been betting all along on the Modi government for cleareyed policy responses to the economy’s problems, many — but not all — of which it had inherited back in 2014.

But the wait has proved frustrating. Far from getting reversed, the slowdown is expected to deepen. The National Council of Applied Economic Research (NCAER) has projected GDP growth for the current year, 2019-20, at 6.2 per cent — slower than the previous year. Agricultural growth, in particular, has collapsed, it says in its quarterly review of the economy released earlier this week.

The government has been slow to respond to the rapidly worsening situation. Although the slowdown was apparent even ahead of the July 5 Budget, Finance Minister Nirmala Sitharaman began meeting industry representatives to gather specific inputs to craft response measures only this week. “The government must engage the industry in a sustained dialogue to find way of addressing the slowdown,” said Saumen Chakraborty, CFO of Dr Reddy’s Laboratories.

To kickstart the economy, the problems of the real estate sector must be redressed, recommends Dr Singh. A substantial chunk of the savings of households is locked in the housing sector, which is currently sluggish. Assuming that the average value of unsold properties is Rs 40 lakh, the amount of money tied up is substantial. The government should, therefore, focus on releasing the holding of capital in housing. A simple way to unblock it, he says, is a stamp duty holiday for a window of, say, one-anda-half years or so.

“Some states have 12 per cent stamp duty and others have seven per cent,” Dr Singh says. “The central government can make it a uniform two per cent across the country for the declared period. Business will start again as soon as people start selling houses. Instead of depending on banks, this can lead to more savings as well as more business and incomes.” The economy is not slowing down because of an external shock or a spike in international crude prices.

The pain is a consequence of the structural problems, and the cumulative neglect of reforms by successive governments. The bottlenecks have been compounded by the policies of the first Modi government. This includes demonetisation and a poorly-designed rates and compliance structure for GST. This, apart from a continuing lack of will to reform the decrepit public banking system and the financial sector’s problems inherited from the UPA government. What these structural problems need, is well-crafted economic remedies.

Instead, as Dr Rajat Kathuria, director and chief executive, Indian Council for Research on International Economic Relations (ICRIER), observes that the government’s response to the slowdown — hikes in import tariffs announced in the July 5 Budget, for instance — remains ad hoc and may not deliver the goods.

 

The policy package must include ways of incentivising firms that are leaving China to come to India to set up manufacturing units, he recommends.

The task for the government is not only to accelerate GDP growth, but also to make sure that this generates jobs. “Because of the distortions created by labour laws, companies are hiring contract labour and substituting capital for use of labour — despite India having the advantage of a low-cost and largesized labour force — and so, jobs are not getting created,” says Dr Kathuria. “As a result, the Indian textiles industry, for instance, which is a labour intensive industry, has become more capital intensive than its counterparts in Bangladesh and China.”

The writer is a Delhi-based journalist and author of The Lost Decade (2008-2018)

Edited August 11, 2019 by Stan AF

[Autonomous]

Imran Khan has been awful so far for Pakistan. 

 

But I doubt if Modi is good for India apart from few Social Fronts. 

[Stan AF]

Bankruptcies galore in manufacturing sector

Read more at: https://www.deccanherald.com/business/business-news/bankruptcies-galore-in-manufacturing-sector-753763.html

Bankruptcies galore in the manufacturing sector

 

The manufacturing sector in India has witnessed the highest number of bankruptcies since 2016-- an indicator of weakness in the sector, despite the Make-In-India push by Prime Minister Narendra Modi. The sector alone comprises of 42% of the corpo

of the corporate insolvency resolution processes (CIRP) filed since the inception of the Indian Bankruptcy Code. The sector has witnessed 899 CIRPs being filed since the inception of the law in 2016. Experts attribute the problem to demonetisatio...

the problem to demonetisation, followed by ill-conceived implementation of goods and services tax (GST) in the country. “The recent slump in demand may have impacted it as well. Also, there is funding crunch in companies owing to the liquidity crisi...

Read more at: https://www.deccanherald.com/business/business-news/bankruptcies-galore-in-manufacturing-sector-753763.html

 

 

Edited August 12, 2019 by Stan AF

[Stan AF]

Industry insiders said that the Gurugram and Manesar belt might have lost around 50,000 to 1 lakh employees since the start of the slowdown

Auto industry's pain percolates to other businesses

2 min read . Updated: 11 Aug 2019, 10:12 AM IST Rohit Vaid , IANS

• Small businesses which manufacture everything from nut bolts to seats have been impacted the hardest by the auto sales slowdown
• Many vendors for small parts have completely shutdown operations and removed all the employees, says General Secretary of Maruti Udyog Kamgar Union

 

 

New Delhi: The consumption slowdown that dented auto industry' sales and production has now percolated to the local economy, causing hardships to thousands of small businesses that supply parts along with services like logistics to the key manufacturing sector.

 

At present, the economic condition of Gurugram and Manesar's industrial areas' local economy is grime as the slowdown has decelerated production, leading to job losses.

The industrial belt houses an estimated 1,000 medium and small ancillary units comprising various vendors of raw materials and auto parts.

Each of these units employ a workforce ranging from 20-200 in the area which is home to automobile majors such as Maruti Suzuki, Hero MotoCorp and Honda Motocycle & Scooter India.

 

 

These small businesses which manufacture everything from nut bolts to seats have been impacted the hardest by the sales slowdown which is a culmination of several factors such as high GST rates, farm distress, stagnant wages and liquidity constraints.

Additionally, not just those directly related to the supply of parts for manufacturing, but even the providers of tertiary services like transport have been hit.

"Truckers that used to bring in raw materials for the whole industry and transport the finished vehicles to dealerships are stranded for months, as work has dried-up," Kuldeep Janghu, General Secretary of Maruti Udyog Kamgar Union, told IANS in Gurugram.

 

 

"Many vendors for small parts have completely shutdown operations and removed all the employees. The real job losses are on their end."

Industry insiders said that the Gurugram and Manesar belt might have lost around 50,000 to 1 lakh employees since the start of the slowdown.

"Part suppliers are the backbone of manufacturing and they along with their sub-vendors are the first to get impacted by the slowdown," Rajesh Shukla, General Secretary of Hero MotoCorp Workers Union, told IANS.

 

 

Consequently, job losses from the mainstay sector of the region has had a cascading impact on other business, thereby creating a negative multiplier effect. This trend might even force some businesses to default on their interest obligations.

"We predominantly depend on the suppliers for small parts like bins, nut bolts and some castings. Lately, these shipments have reduced with some of our sub-vendors also closing down," said Satish Kumar, an employee with a tier-I parts manufacturer.

 

 

"With the loss of many jobs in the auto sector, other local businesses and rentals here that depend on these workers have been impacted badly."

A case in point is the empty residential buildings meant for workers in the urban villages of Sharol, Bans and Dhani in this industrial belt.

Last week, automobile sector's representatives met with Finance Minister Nirmala Sitharaman to apprise her of the grime situation.

 

 

The fall-out of the slowdown can be gauged form the fact that the auto industry contributes around half of manufacturing GDP and 11% of the total GST revenue. It is estimated that the sector also supports almost 37 million direct and indirect jobs.

Recently, all major OEMs consisting of passenger, commercial, two and three wheeler manufacturers have reported a massive decline in domestic sales.

 

 

Figures from the Society of Indian Automobile Manufacturers (SIAM) showed that domestic passenger car sales in June went down by 24.07% to 139,628 units. The July figures are awaited.

Consequently, sales slowdown led to curtailment of manufacturing with the domestic passenger cars' production coming down by 22.26% to 169,594 units in June.

 

https://www.livemint.com/auto-news/auto-industry-s-pain-percolates-to-other-businesses-1565497810100.html

[Stan AF]

 

Biting India's economy hardest: Policy uncertainty is adding huge volatility to already troubled sectors

India's black swan moment is here. Its total unpredictability is sending jitters across already shaky markets.

 

 

 

 

"Economic policy uncertainty also (sic) correlates strongly with the macroeconomic environment, business conditions and other economic variables that affect investment. Surges in economic policy uncertainty increase the systematic risk, and thereby, the cost of capital in the economy. As a result, higher economic policy uncertainty lowers investment, especially because of the irreversibility of investment".

"... a poorly drafted law that is riddled with ambiguities, amendments, clarifications and exemptions that inevitably lead to conflicting interpretations and spawn endless litigation. Needless to say, such uncertainty can spook investors and spoil the investment climate in the economy”.

If you think this is the frustration of a dejected entrepreneur or the pontification of a peeved economist, it’s neither.

These wise words come from the latest Economic Survey (2018-19), which has given India the dream of a $5 trillion economy. With a full chapter on policy uncertainty, the Economic Survey proved itself right after Finance Minister Nirmala Sitharaman presented Budget 2019. Developments post-Budget have created an insecure and ambiguous policy environment where industry players and investors are unsure about how to move the needle on business and investment.

 

Policy uncertainty has an engine and four wheels.

The automobile industry that has been going through a terrible slowdown in its recent history got a heavy dose of policy uncertainty — right in the middle of the depression, the Budget slapped heavy customs duty on imports of auto parts. The cess on petrol-diesel has been hiked, adding to the fuel expenses of car owners.

While the industry struggles to adjust with new standards of pollution, the government has proposed to increase the registration fee for vehicles. Additionally, tax concessions have been announced for electric vehicles — a nascent segment that is yet to build infrastructure and start manufacturing. If it does, in all likelihood, parts and batteries will be imported from China.

An influx of policies has hit the industry so badly that despite frequent production cuts in motown, inventories have been piling up and dealership units are getting closed. Organised space comprises 40% of the automobile industry and is labour-intensive. Extensive job loss is expected in auto ancillary (auto components) and maintenance services segments.

A recent report says 3,50,000 layoffs have happened since April. 

Slowing down: And how. The automobile industry has been hit by numerous negative factors recently. (Photo: India Today)

Policy unrest has strangulated the housing and construction industry as well. 

The vicious demonetisation hit the real state and housing industry right in the middle of an already intense slowdown —  the industry, grappling with falling demand and growing loan burdens, faced another disruption in Real Estate (Regulation and Development) Act, 2016 (RERA) before it could overcome the shock of the note ban. RERA indeed is a major clean-up drive, but it also led to several companies shutting down, leaving behind a pile-up of bad loans and frustrated homebuyers.

The imposition of goods and services tax (GST) on building construction material and sale of houses further crippled the sector. It took two years for the government to realise that high GST is detrimental to the health of the housing sector. No sooner than GST pressure was eased, the construction industry caught itself in the middle of an acute liquidity crunch after non-banking finance companies, such as IL&FS and DHFL, defaulted on their loan repayments.

Meanwhile, the National Housing Bank (NHB) asked the Housing Finance Companies (HFCs) to stop funding interest subvention schemes.

This clampdown will stop developers from servicing buyers’ loans until projects are completed.

Last but not the least, the Supreme Court order in the Amrapali case, that public builder NBCC will have to complete unfinished projects, will also likely trigger more uncertainty and a crisis of confidence in the industry.

In the pits: Housing and real estate are not doing well either — and policy swings are certainly not helping. (Photo: India Today)

Construction is the biggest livelihood provider after agriculture. The industry is grappling with a deep mess, with over 13 lakh houses waiting for buyers across 30 cities, while several lakhs are still unfinished.

Such examples of policy volatility are visible in other sectors as well.

During its first tenure, the government had discouraged (quoting of PAN in buying) purchase of gold in a bid to curb black money. Now, the Budget has suddenly increased import duty on gold, indirectly incentivising smuggling and illegal trade in the domestic market. The high cost of imported gold would turn the jewellery export industry uncompetitive, resulting into job losses.

The Budget has brought bad news for Make in India too — by imposing a duty of 5% on parts of television sets. Companies such as Sony and Samsung may start importing assembled TV sets from FTA (free trade area) jurisdictions such as Thailand, Malaysia and Vietnam.

Since the Budget logged in, the policy instability has made the stock market bleed profusely with a loss of a whopping Rs 12.53 lakh crore in market capitalisation. The Budget has given all-round shocks to the market even as frequent changes in taxation have already troubled the investor community in the past.  

The proposal to hike minimum public shareholding for listed companies to 35% from 25% was announced without explaining its rationale. Raising effective tax rates for persons (including foreign investors registered as a body of individuals or an association of persons) reporting a taxable income of Rs 2 crore or more is contrary to the Interim Budget in February that promised tax concessions to be announced in the final Budget.

The Budget did not honor the then-Finance Minister Arun Jaitley’s promise that the tax rate for companies (irrespective of turnover) will be brought down to 25% by 2020.  

After the imposition of dividend distribution tax, many companies had resorted to buybacks to share excess cash with shareholders. With 20% tax imposed on buybacks, the government has brought the buyback and dividend at par.

Where's the glow? With an increase of import duty on gold, illegal trade has been incentivised. (Photo: India Today)

The recent package of policy uncertainty is a follow-up to shocking demonetisation of high-value currency notes, sloppy implementation of GST and numerous amendments in IBC (Insolvency and Bankruptcy Code). India indeed is going through its black swan phase — unpredictable events causing severe consequences — marred by policy uncertainty.

In order to find a solution to its ongoing structural slowdown, the following passage of the Economic Survey must be printed in the minds of the mandarins now:

“The top-level policymakers must ensure that their policy actions are predictable, provide forward guidance on the stance of policy, maintain broad consistency in actual policy with the forward guidance, and reduce ambiguity/arbitrariness in policy implementation. To ensure predictability, the horizon over which policies will not be changed must be mandatorily specified so that investor can be provided the assurance about future policy certainty”.

Is anyone listening?

 

https://www.dailyo.in/business/budget-highlights-budget-2019-highlights-union-budget-2019-highlights-union-budget-nirmala-sitharaman-nirmala-sitharaman-budget-indian-economy-indian-economy-slowdown/story/1/31849.html

[Stan AF]

Tata Steel to cut capex to Rs 8,000 crore in FY20 amid slowdown

Tata Steel is likely to revise planned capital expenditure for 2019-20 to Rs 8,000 cr from Rs 12,000 cr.

 

 

 

https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/tata-steel-to-cut-capex-to-rs-8000cr-in-fy20-amid-slowdown/articleshow/70621047.cms

Edited August 13, 2019 by Stan AF

[Stan AF]

Liquidity crunch is taking toll on steel sector: JSW Steel's Seshagiri Rao

The demand for steel is on a declining trend as user industries are slowing down. JSW Steel Joint Managing Director and Group Chief Financial Officer Seshagiri Rao tells Ishita Ayan Dutt

 

https://www.business-standard.com/article/companies/liquidity-crunch-is-taking-toll-on-steel-sector-jsw-steel-s-seshagiri-rao-119081200023_1.html

[Stan AF]

There is a fundamental problem of demand today. At the core of it is incomes that aren’t rising enough

The certainty that producers once enjoyed — of finding buyers for their wares without doing much beyond minor price adjustments to bring supply and demand into equilibrium — has ceased to exist.

Written by Harish Damodaran | Updated: August 13, 2019 9:15:51 am

The certainty that producers once enjoyed — of finding buyers for their wares without doing much beyond minor price adjustments to bring supply and demand into equilibrium — has ceased to exist. (C R Sasikumar)

India traditionally never had a demand problem. On the contrary, its economy was always supply-constrained.

 

Proof of no demand paucity is that between 2000-01 and 2015-16, domestic consumption of both finished steel and cement roughly trebled, from 26.3 million tonnes (mt) and 92 mt, to 81.5 mt and 269 mt, respectively. During the same period, annual sales of passenger vehicles quadrupled (from 6.9 lakh to 27.9 lakh), while growing 4.5 times in the case of two-wheelers (from 36.3 lakh to 164.6 lakh) and five times for commercial vehicles (from 1.4 lakh to 6.9 lakh). Also, the total air passengers flown jumped nearly 10 times (from 14 million to 135 million) and the number of telephone connections 30-fold (from 36.3 million to 1059.3 million).

Supply not keeping up with demand — recall those long waiting periods for telephones, LPG connections and Bajaj Chetak scooters — was also manifested in inflation. Annual retail food inflation during the Nineties, and even the 10 years from 2006-07 to 2015-16, averaged 9.8 per cent. Not surprisingly, “supply management” measures — be it stocking limits under the Essential Commodities Act, export bans, zero-duty imports or selective credit control to restrict bank finance against cereals, pulses, sugar, oilseeds and raw cotton — were par for the course.

All this has changed in the last three years or less. The certainty that producers once enjoyed — of finding buyers for their wares without doing much beyond minor price adjustments to bring supply and demand into equilibrium — has ceased to exist.

 

This hasn’t been an overnight phenomenon. It started with agriculture from around mid-2014, when global agri-commodity prices crashed, leading to a collapse in export demand for Indian farm produce and simultaneously increasing vulnerability to imports. But the real deluge has happened in the last three years, especially after demonetisation. Consumer food inflation has, for 34 months running, from September 2016 to June 2019, ruled below general retail inflation and averaged a mere 1.3 per cent year-on-year.

While such a prolonged near-deflationary phase in farm prices is unprecedented, the other sector to have experienced a similar extended slump is real estate. According to the property consultancy firm Knight Frank, between 2013 and 2017, the number of new residential launches in India’s top eight cities plunged from 4,20,105 to 1,03,570 units, with sales, too, dipping from 3,29,238 to 2,28,072 units. 2018 saw a mild recovery, but it marked the fourth year of growth in residential house prices trailing overall consumer inflation, with the gap progressively widening since mid-2016. As on June 2019, the unsold housing inventory of 4,50,263 units in these cities was still equivalent to 9.3 quarters of sale. Like agriculture, real estate transactions are significantly cash-based. Small wonder, this industry’s woes have also intensified post demonetisation.

Explained: Two ways to look at GDP

But demonetisation and goods and services tax (GST) were events of late-2016 and 2017. Their effects shouldn’t plausibly have lasted beyond, say, March 2018, when the total currency in circulation had reverted to pre-demonetisation levels. India Inc had, indeed, welcomed demonetisation and GST, claiming that the temporary economic dislocations caused notwithstanding, these would help create a “level-playing field” vis-à-vis unorganised sector players who were avoiding taxes by doing business largely in cash.

What is interesting, though, is that the demand slowdown has spread to more industries in the last one year. Thus, sales of passenger vehicles have fallen year-on-year in every month between July 2018 and June 2019, barring October. The same goes for two-wheelers since December 2018. Hindustan Unilever, a bellweather for India’s fast-moving consumer goods sector, has posted a drop in annual sales volume growth from 12 per cent in April-June 2018 to 7 per cent in January-March 2019 and 5 per cent in April-June 2019.

 

The reasons for such all-round demand deceleration, when the worst of demonetisation and GST are behind us, are hard to fathom. The most common explanation ascribes it to the liquidity squeeze experienced by non-banking financial companies (NBFCs), following the serial defaults on debt obligations by Infrastructure Leasing & Financial Services Ltd last September. Now, it’s true that NBFCs were accounting for over a third of the incremental credit in the system, with their retail loans (mainly for vehicle, consumer durables and home purchases) alone rising by 46.2 per cent during 2017-18 on top of 21.6 per cent the previous year. To the extent that their funds via bank borrowings and issuing of non-convertible debentures or commercial paper have dried up, it has had an obvious ripple effect on the economy.

 

The argument, however, misses the point. NBFC credit expansion from 2014-15 was primarily fuelled by non-performing assets-laden public sector banks cutting back on their lending. The big credit explosion, moreover, took place only after and because of demonetisation, which resulted in a flood of liquidity with banks and mutual funds. This excess cash they then lent to NFBCs, either directly or through market-based instruments that allowed Indiabulls and lesser firms to get money almost as cheaply as HDFC. The party couldn’t have gone on. The NBFC credit freeze has, no doubt, affected sectors such as real estate, construction and automobiles. But how does one explain a third consecutive quarter of slowdown for even FMCG, as per the market research firm, Nielsen? And real estate’s troubles, we know, preceded the current NBFC crisis.

 

The diagnosis is clear: There is a fundamental problem of demand today — a devil India has never encountered before. At the core of it is incomes that aren’t rising enough. Not only have household savings come down — from 22.5 per cent to 17.2 per cent of GDP between 2012-12 and 2017-18, estimates Kotak Institutional Equities — but consumption is also feeling the pinch now. When jobs and incomes are under strain, how much can loan-pushing by NBFCs help? A two-wheeler loan has to ultimately be paid from one’s salary or wages.

 

The question well worth asking is how much of this income and demand stress is actually an outcome of demonetisation and GST? The informal sector, to quote T N Ninan (Seminar, January 2018), was some kind of an “employment sink” and “shock absorber” for the Indian economy. It also provided the underlying demand support for goods and services that were bought, stocked and distributed through vast decentralised networks.

 

The country’s formal economy may well be growing by 7-8 per cent today, which the official GDP data is, perhaps, rightly capturing. But if the informal un-measurable part has been contracting by 20-25 per cent a year, the effects on demand need no elaboration.

This article first appeared in the August 13 print edition under the title ‘The economy devil we don’t know’. Write to the author at harish.damodaran@expressindia.com.

 

https://indianexpress.com/article/opinion/columns/indian-economy-supply-demand-slowdown-inflation-gdp-5899624/