Fragility to Fast Track?

Arun Jailtley mentioned that the UPA’s fragile economy is on fast track now. CSO forecast of GDP growth on the eve of the Budget 2018-19, however, is 6.5%, the slowest of the last four years. What has moved fast?

Union Budget presentation moved from March end to February end. Insolvency and Bankruptcy Code completed its first anniversary. But the MSMEs are yet to get their deal. All the goods carriers from North East to down South Kerala move without any check post hurdles and the palm greasing saving nearly Rs.30000cr for various companies. Indirect Tax Reforms through GST with all its initial hiccups is still with glitches. Tax compliance moved an inch up on direct taxes although only 1.2% of the tax filers paid taxes.

Bring in two-tier cooperative sector

Telangana is a trendsetting State proved its maturity in thinking, policy, performance and reforms. It’s unparalleled digital journey led to TSiPASS, T-Hubs, TIHCL, T-Valet, Ma Bhoomi and many a start up securing first rank in EODB. Its growth rates in agriculture and services thus far have put the state on top in the country.

It has set a new trend in governance getting closer to people with decentralising administration through the 31 districts carved out of 10 at the time of formation of the state. It has become a favoured state for investments. The State is firmly put on global radar with the Global Enterprise Summit and World Telugu Conference.  It is aware that the journey is unfinished and many miles to go. The visionary leadership of the Chief Minister saw a potential in cooperative sector if reformed through appropriate legislative interventions.  Here are a few thoughts for his consideration.

TIHCL Inching Forward

https://telanganatoday.com/tihcl-gets-rbi-nod-for-nbfc

Can Cooperative banks be better alternatives?

Cooperative Banking – Hopes on the rise

Banking environment in India structurally has become more dispersed than before with the Small Finance Banks, Payment Banks, Postal Bank emerging on the scene. Mergers and amalgamations in the private and public sector banks and ever increasing NPAs in the commercial banks are threatening the stability of the system. Seemingly strong macro-economic fundamentals notwithstanding, disruptive technologies are also adding fuel to fire. FRDI Bill poses a threat to the security of depositors and leaders’ promises cannot be insurance to what the bill itself holds for the banking clientele. Senior citizens, differently abled citizens, women and several customers of small means feel distanced from the services they were expecting at the hands of the banks.

CIBIL Scores Need Improvement

CIBIL Score

I was wondering why the lenders keep offering a personal loan in 24 hours to a few persons and how they get to know my mobile number to call repeatedly.  When I looked at my CIBIL score card, I got the hang of it all. Banks subscribe to the CIBIL and access the data.

Resource Efficient Cleaner Production and MSMEs

Can SMEs move to the RECP technologies?

UNIDO and UNEP started working with CII on the propagation of Resource Efficient and Cleaner Production (RECP) in manufacturing with a mission to improve resource productivity, prevention of waste, emissions and efficient use of water. Culturing SMEs in India as seedbeds of manufacturing requires a critical look at the issues and possible solutions.

Recapitalisation, NPAs and Basel III

http://www.moneylife.in/article/banks-recapitalisation-i-the-need-is-rs5-lakh-crore-to-meet-basel-iii-capital-norms/52166.html

http://www.moneylife.in/article/banks-recapitalisation-ii-4-measures-that-will-help-banks-survive/52178.html

Post demonetisation, banks were flush with funds and yet credit did not pick up. Blame was on the surging NPAs that decimated the risk appetite of the Banks. The whole country is now aware that NPAs of corporate borrowers is the villain of the piece. Banks for once stopped blaming the priority sector for the unsustainable level of NPAs.

PSBs have their liberal share and therefore FM announced recapitalization of the order never seen before at Rs.2.11trillion. To call these reforms is a travesty of judgement. Average tax paying person has to bite the bullet. It has the potential for moral hazard.

India's Growth Story

The Apparent and the Real Growth Story of India

B.  Yerram Raju*

There was a chorus from some economists with former FMs joining against the transitory decline in the GDP growth as though GDP is a strong determinant of growth. High growth and high inflation are good friends (see the table below) and the net result has resulted in poor becoming poorer and rich, the richer.

S.No.	Particulars	Average 2009-10 to  2013-14	2014-15	2015-16	2016-17	2017-18 First quarter
1	Real GDP@ market prices (%change)	7.4	7.5	8.0	7.1	5.7
2	Inflation (CPI-Industrial workers) (average %change) Wholesale price Index (average % change	10.3 7.1	6.3 1.3	5.6 -3.7	4.1 1.7	1.8 1.9

Source: RBI Annual Report 2016-17 and monthly Report September 2017.

Notwithstanding some of the good things that NDA government has done like the laws to regulate the Real Estate sector and the Insolvency & Bankruptcy Code, amending 87 rules for FDI in 21 sectors, abating corruption in some quarters and the GST introduction etc., resounding alarm has been the faulty(ed) demonetization, the GST glitches and the enigmatic oil prices that have lost the relationship with the crude price variations.

In the context of monetary policy announcement there is another chorus for reduction in interest rates as though such reduction in the backdrop of risk aversion of the banks due to the unrelenting NPAs would kick start fresh demand for credit. All the rate cuts thus far failed to result in any fresh credit or a pass through to the existing clients to spur demand. It is doubtful that RBI would have the luxury of another rate cut in the emerging economic uncertainties and falling rupee on the Forex front. Stock markets became nervous with the global undercurrents of rising unrest between North Korea and USA.

While demonetisation set in a trail that closed the a lakh and odd shell companies and disqualified 3lakh directors apart from around Rs.30000cr tax evasion, GST is in the process of bringing in better tax compliance. Going by global experience, GST will take a minimum of two years to stabilise. However, what the GST missed out is a big worry: skipping the petrol, diesel and trade in waste and scrap. A rough estimate says that the city of Mumbai alone has a turnover of Rs.1trn a year in waste and scrap. Huge black money hides here because all deals are in cash even now.

Rising fiscal deficit is another major concern. The States in the emerging political context and certain states by habit have been indulging in distributive justice without productive gains. Gujarat elections are a case in instance where the insurance companies against no fall in agriculture production are in line for responding to unsustainable claim settlements under PMBY.

In addition dragging farm sector despite good monsoon, education and health sectors are the other bigger causes for the present imbroglio in the economy.

Pragmatic government would have started addressing more worrisome issues like the rising unemployment and declining manufacturing, certainly not as a consequence of the reforms but as a cause.

Nation with more young population in the backdrop of consistent unemployment rate of 7-8% during the last three years is also facing the rising aged working population with bulging demand for high pension budget. NSSO 2011-12 Employment Survey – the one quoted by NITI Aayog in its Vision 2017-20 – admits to 51% of the workforce employed in manufacture and services, contributing to 83% share in the economy.

The Vision Document failed to make MSMEs the centre of manufacturing and employment growth.  MUDRA should move to targeting micro manufacturing enterprises in the ‘Tarun’ window. A crore of Rupees investment in manufacturing MSEs would give rise to average of six persons while six crore rupees in medium and six hundred crores in large enterprises would give rise to employing no more than ten and a couple of hundreds respectively. Its emphasis on the high-productivity high-wage jobs in the large industry sector is misplaced while its focus on infrastructure investment is laudable.

Before any strategic corrective interventions are made, the government must listen to dissenting voices both from within and outside. While fresh investments in infrastructure like Rail, Road and Ports are welcome, corrections to the failed infrastructure would require less investments if the Industrial Estates of the yester-era do not turn into havens of real estate instead of manufacturing hubs.

If the next budget typically focuses on elections and fails to provide the much needed investments in education, safe drinking water, health and bolstering manufacturing sector realising that the Make-in-India and Start-Up India remained as slogans both the economy and the NDA are going to witness a decent burial. If every citizen in the country can get safe drinking water health budget of the poor would come down by 70-80 percent. This should be the next mission of the Government.

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