Modi sarkar economic reforms/governance performance thread

[Stan AF]

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

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

[Stan AF]

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.

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

[maniac]

Bring in Subramaniam Swamy into the finance ministry. Too much of a maverick but the guy is a genius

[Stan AF]

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.

 

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

 

[Stan AF]

 

 

[Stan AF]

 

[Lannister]

 

This is what happens when you vote for a bunch of illiterates, in the name of nationalism. 

[Stan AF]

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

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

 

https://www.thehindubusinessline.com/money-and-banking/link-between-banks-nbfcs-raises-risk-of-contagion-in-a-financial-crisis/article29281040.ece

 

 

 

[Stan AF]

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

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

[Stan AF]

 

[Stan AF]

 

[Stan AF]

 

[Stan AF]

 

[Stan AF]

 

[Stan AF]

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

 

 

 

 

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

[Stan AF]

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

 

 

 

1739

 

 

 

 

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.
 

 

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.

 

 

 

 

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

[Jimmy Cliff]

 

Thread. And this is coming from a so-called RW account.

 

[R!TTER]

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 

 

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.

[Real McCoy]

@velu I know the economy is not doing well but why does @Stan AF keep repeating these doom and gloom stories throughout this page. Some guy who used to invest part time said to me that news of failing economy contributes heavily to economic downturn. I'm not saying this government is all roses but what would congress have done when faced with this situation. They have been in power from 2004 to 2014. What have they done that is so remarkable. Rather than posting stories about gloom and doom, stan can give solutions of how it should be done. Atleast others can get some perspective.

[Stan AF]

Jeez, I'm just posting news dude. Maybe you should ask that question to the elected government.