Tag Archives: economy

Books, India

India and the goal of $ 5 Trillion Economy: Do we just sigh at the present status or do something about it?

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Newsroom24x7 Network

Dr Aruna (Limaye) Sharma’s latest book “Dancing towards the $ 5 Trillion Economy on a Holistics Beat” is dot on time, especially when global economies are grappling with the COVID-19 pandemic and are busy reformatting themselves to take on the challenges that lie ahead.

This book, by a career bureaucrat, a 1982 batch IAS officer borne on the Madhya Pradesh Cadre, who has had a ring side view of how things shape and how policies are framed, crafted and implemented in a federal structure, first while serving Madhya Pradesh in various capacities and then as Union Secretary Steel and Information Technology, is an authentic treatise on the path that India should take to catapult itself into the position of primacy in the comity of nations.

Dr Aruna (Limaye) Sharma

The author begins on a note of optimism by asserting that the new economic balance  of  power, that we see today at the global level, has  given  the  country  a  chance  to  reclaim much  of  its  earlier  glory when  it  was  one  of  the  world‘s  richest  civilizations.

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Today, Dr Sharma observes, the vital  indicators  reflect  the  country‘s  potential  as  an  economic powerhouse. We  have  all  the  ingredients  of  a  resilient  society,  backed  by  strong  societal support  but  not  social  security,  a  conservative  economic  system  which  is  to  an  extent recession-proof  but  not  transparent,  and  a  great  talent  pool but  with  limited  opportunities for  nurturing  those  skills.  What  we  lack  is  the  right  approach  to  policy  making  and  the development  of  an  ecosystem  to  harness our  immense  potential. One  major  drawback  is  our  silo  approach  when  drafting  policies  for  a  sector.  This  has led  to  a  series  of  decisions  based  on  an  ad-hoc  system  of  governance. We  have  situations  where  laws  and  policies  are  made  more  to  address an  immediate  crisis rather than  through  a  holistic thinking  process.  We  see  a  lot  of  lag  between  the  pace  at which  new  business  models  emerge  and  the  response  from  the  Government,  which forms  policies  with  a  retrospective  outlook. Then there is also the knee-jerk  reactions  and  a  precedence-based approach. India‘s  position  as  the  most  lucrative  market  for  global  businesses  was  one  of  the  early signs  that  highlighted  its  potential  to  become  a  superpower.  This  prediction  was  based on  the  prowess  that  India  has  showcased  and  proven  in  terms  of the  ability of the country to  lead  the world  in  various  fields  such  as  manufacturing,  analytics,  education  systems,  innovation, engineering  and  its  diplomatic  outlook  (of  practicing  non-violence  and  not  being  an aggressor).

The author is forthcoming in stating that compared to most developed and industrialised nations, in  India, we have a situation where  starting  or  managing  a  business  is  hugely  dependent  on government  policies.  We  have  a  complex  administrative  process  to  be  followed  from opening  a  business,  to  setting  it  up  and  to  running  it. 

Based  on  this,  the  new Government  focused  on  Ease  of  Doing  Business  to  transform  its  role  to  that  of  an enabler.  Unfortunately,  the  results  have  not  been  encouraging  so  far, the author points out.

This  book  critically  evaluates  this  approach  and  its  pros  and  cons.   

While underscoring the  COVID-19  pandemic,  has further decelerated the  economic  growth  outlook, the author goes on to observe that it is  disastrous  since  India’s economy  was  already  on  a  downward  roll. What aggravates the situation more is the fact  that  the country’s biggest  asset,  the  youth,  is  likely  to  become  the biggest  liability as the number  of  graduates  and  the  job  opportunities  available  in  the country  are  massively  out  of  sync.  Government  came  up  with  some  solutions like Make  in  India,  StartUp  India  and  Skill India.  Most  graduates  looking  for  employment  were  encouraged  to  become entrepreneurs  and  promote  or  scale-up  frugal  innovation.  To  increase  jobs,  the Government  decided  to  promote  indigenous  production,  thereby  creating  more  jobs. Unemployment  and  illiteracy  were  also  addressed  through  Skill  India,  by  training  Indian youth  through  skill  development  which  was fully  sponsored  by  the  Government.   All  the  programmes  were  designed  to  address  the  key  problems  plaguing  India‘s  overall development  as  an  economic  superpower.  However,  the  underlying  policy  ecosystem on  which  these  programmes  and  schemes  were  based  remained  unchanged. 

Dr Sharma concludes by emphasising that it is time to take the bull by horns and make a paradigm shift to a holistic approach. The first challenge, according to her is to rein the sliding GDP and bring it back to the pre lockdown levels (which were not that great either). The next task is to stay on the upward curve to sustain the growth story of India‘s developing economy.

The challenge is huge. Figures given in the book to drive home the point are startling and enough to shake the nation out of every bit of complacency. In Quarter 1 of FY 1920-21 the GDP, as declared by NSO, is -23.9%. How long will it take us to get out out of woods? Dr Sharma asks.

Indicators of economic performance of July and August 2020 suggest we might have a contraction of about 12-15% in Q2 leading to India being officially in recession.

The powers cannot ignore the big question from the author: Do we just sigh at the status or do something about it?

Title: Dancing Towards the $ 5 Trillion Economy on a Holistics Beat, Price: Rs 1599

Author: Dr Aruna (Limaye) Sharma

Publisher: Indra Publishing House

Other Books and Papers by Dr Aruna (Limaye) Sharma

Resource Convergence Mantra Model (2008) and Impact of Recourse Resource Convergence in Policy Making Program Design and Execution (2014) released by UNDP. FAO has also published her work on food security. Her book U@Game Changer for Inclusive Growth for public representatives, has been bestseller and reference book for elected representatives. Her paper Post COVID Challenges: Need of UN to Metamorphose-Rediscover Its Priority and Functionalitiesis has been published by RIS Discussion Paper Series 261. Her article on The Samagra anti-poverty programme in Madhya Pradesh: Integrating household data, overcoming silo-problems and leaving nobody behind has been published in electronic version. It’s print version will come in Development Policy Review.

Business, India, Opinion, Politics

Rahul Gandhi’s tweet against Gautam Adani blown into smithereens

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Newsroom24x7 Network

In this episode of Straight Talk Newsroom24x7 Editor-in-Chief Lalit Shastri blows into smithereens a tweet by Congress leader Rahul Gandhi, who takes a jibe at Business leader Gautam Adani only to score a political brownie point.

Elon Musk increased his net wealth by $128.9bn, Jeff Bezos by $78.2 billion. But Gautam Adani of India has surpassed both of them in wealth creation during the COVID pandemic.

It is not Adani alone, the wealth of Indian billionaires increased by 35 per cent during the lockdown and by 90 per cent since 2009 to $422.9 billion, ranking India sixth after the US, China, Germany, Russia and France, according to an Oxfam Report released in January this year.

In fact India’s top 100 billionaires saw their fortunes increase by Rs 12.97 trillion.
Worldwide, billionaires saw their wealth increase by a staggering $3.9 trillion between March 18 and December 31, 2020.

It is noteworthy that the Adani Group is a multi-sector enterprise engaged in diverse areas that include Renewable Power Generation, Solar Manufacturing, Ports and Terminals, Logistics, Agri Logistics, Industrial Land, Power Transmission, Power Distribution, Gas Distribution, Defence and Aerospace, Edible Oil and Food Products, Fruits, Real Estate, Financial Services, Housing Finance, and Airports.

Speaking at the “JP Morgan India Summit – Future in Focus” in September 2020, Gautam Adani had projected that Indian Economy will be on top by 2050.  For the GDP freaks, he rolled out figures and pointed out that the global GDP in 1990 was $38 trillion. Today, 30 years later, it is $90 trillion. In 2050 the global GDP is expected to be about $170 trillion with india, especially due to its geostrategic position and massive market size will have the potential of becoming the second-largest economy in the world.

We all know that there has been a very deep potential impact of COVID-19 lock-down on income levels and consumer spending especially in the unorganised and tertiary sector that left a huge impact on the consumer market worldwide in the initial months of 2020. The dark clouds have continued to hover across board even thereafter for small traders, and daily wage earners. 

We also know when markets go into spin under such special circumstances, they undergo massive corrections, and new leaders drive the next surge. In the era of post liberal economy, during the closing decade of the 20th Century, it was consumption that drove the markets to a new high. We entered the new millennium with the internet and worldwide web revolution and the IT giants pumping GDP and growth. This was followed by infrastructure, banking, financial services and insurance. Now since 2020, the COVID situation has altered the markets that are now increasingly driven by the potentially higher role being played by the service utilities, chemicals, rare earths and health sectors.

Rightly, Gautam Adani with a forward looking perspective, has pointed out that Democracy cannot take a cookie-cutter, meaning thereby a typical copybook socialistic approach, In his words, “we should accept that different nations will have their own flavour of democracy and capitalism”.

Addressing the commoners on the street and the countryside, who have suffered endless poverty under successive Congress regimes right through Independence, the former Congress President Rahul Gandhi targetted Gautam Adani, with a tweet on Saturday night- 13th March.

Rahul wrote: “How much did your wealth increase in 2020? Zero. You struggle to survive while he makes rupees 12 Lakh Crore and increases his wealth by 50%. Can you tell me why?”

With this tweet, Rahul has rubbished the potential of a successful enterprise to drive national economy during tough times. For his narrow political ends, he has even stooped too low by targetting a business leader who has beaten all competiton in the global arena. What Rahul has tweeted does not stem from naivety or lack of understanding of what drives enterprise, business and economy but a very diabolic mind.

economy, India, Politics

Rising fuel price, hole in the commoner’s pocket and national goals

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Newsroom24x7 Network

When there is so much sound and fury on rising fuel prices that have hit the ceiling, we did some calculation on the basis of rising petrol price in a real time frame by breaking it into two distinct segments.

First, lets consider the period between 2004 and 2014 when Manmohan Singh was heading UPA-1 and UPA-2 as Prime Minister and Congress chief Sonia Gandhi was Chair of the UPA. And then we have Narendra Modi as Prime Minister, continuously since May 2014.

In June 2004 price of petrol was Rs 35/litr
In May 2014 it was Rs 71 (Manmohan regime)
2014 May to 2021 March (7 years of Modi regime) the price of petrol has gone up from Rs 71 to 100.

To put it on a lighter note, if we take into consideration Manmohan’s ten years in office, then Modi also should get the margin and be allowed to raise the price to Rs. 140 a litre by the time his second term ends in 2024.

Fuel price is also dictated by Central Excise, road cess and VAT charged by the State Governments and is a major source of revenue that supports the budgeted expenditure on welfare and development related activities. Modi government has the option of reducing Central excise but that would bring the massive initiative aimed at HRD, building the economic infrastructure for all round progress to a screeching halt. Credit goes to Prime Minister Modi that instead of taking a populist stand, his government has curbed corruption and is working with a futuristic plan focussing on education, skill development, health, industry and agriculture sectors, self-reliance, infrastructure, defence and security.

In sharp contrast, the 10 year UPA rule is known for rampant corruption, rise of crony capitalists, middle-men and fixers and a series of scams besides dismal showing on infrastructure front. Unfortunately, Manmohan Singh did nothing to address the concern expressed by Rajiv Gandhi, who had lamented at the Congress Centenary celebration event in Mumbai in 1985 that only 15 paise of each rupee spent by the government reach the needy.

On the same page, we thought it would go a long way towards educating the masses, so we are reproducing below a post doing the rounds on social media over the past few days:

All the petrol pumps should have a board like this so that people could understand who is responsible
Basic rate 30.50
Central govt tax 19.97
State govt tax 38.55
Distributor 3.50
————
Total. 92.52

Banking, economy, India

RBI announces nine additional measures for strengthening the Economy

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Newsroom24x7 Network

  • Cuts interest rates, extends moratorium by another 3 months
  • Exporters and Importers get More Liquidity
  • Domestic Economy to contract in 2020-21, revive gradually in the second half: RBI Governor

Mumbai: “It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue.”

With these words RBI Governor Shaktikanta Das drew hope and inspiration from the 1929 statement of Mahatma Gandhi, as he announced yet another set of nine measures to smoothen the flow of finance and preserve financial stability in the turbulent and uncertain times ushered in by the COVID-19 pandemic. This follows the earlier sets of measures announced by RBI on April 17, 2020 and on March 27, 2020.

Making the announcements through an online address, the Governor stated that we must have faith in India’s resilience and capacity to overcome all odds. Expressing the confidence that we will together triumph over today’s traumatic trials, the Governor spoke with a sense of calling. He noted that the situation warrants that “central banks have to answer the call to the frontline in defence of the economy”.

Repo rate reduced by 40 basis points

The Governor has announced a reduction in major policy rates, in order to revive growth and mitigate the impact of COVID-19, while ensuring that inflation remains within the target. The repo rate has been reduced by 40 basis points from 4.4% to 4.0%. The Marginal Standing Facility rate and the Bank rate have been reduced from 4.65% to 4.25%. The reverse repo rate has been reduced from 3.75% to 3.35%.

“Judging that the risks to growth are acute, while the risks to inflation are likely to be short-lived, the Monetary Policy Committee believes that it is essential now to instil confidence and ease financial conditions further. This will facilitate the flow of funds at affordable rates and rekindle investment impulses. It is in this context that the MPC voted to reduce the policy repo rate by 40 basis points from 4.4 per cent to 4.0 per cent” the Governor said.

Das also announced a set of regulatory and developmental measures which he said complement the reduction in the policy rate and also strengthen each other.

He reiterated that the goals of the measures being announced are:

  • to keep the financial system and financial markets sound, liquid and smoothly functioning
  • to ensure access to finance to all, especially those that tend to get excluded by financial markets
  • to preserve financial stability


Measures to Improve the Functioning of Markets

Refinance Facility to SIDBI extended for another 90 days
In order to enable increased supply of affordable credit to small industries, the RBI had, on April 17, 2020, announced a special refinance facility of ₹15,000 crore to SIDBI at RBI’s policy repo rate for a period of 90 days. This facility has now been extended by another 90 days.

Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route
The VRR is an investment window provided by RBI to Foreign Portfolio Investors, which provides easier rules in return for a commitment to make higher investments. The rules stipulate that at least 75% of the allotted investment limit be invested within three months; considering the difficulties being faced by investors and their custodians, the time limit has now been revised to six months.

Measures to Support Exports and Imports

Exporters can now Avail Bank Loans for Higher Period
The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months, for disbursements made up to July 31, 2020.

Loan facility to EXIM Bank
The Governor has announced a line of credit of ₹15,000 crore to the EXIM Bank, for financing, facilitating and promoting India’s foreign trade. The loan facility has been given for a period of 90 days, with a provision to extend it by one year. The loan is being given in order to enable the bank to meet its foreign currency resource requirements, especially in availing a US dollar swap facility.

More time for Importers to Pay for Imports
The time period for import payments against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India has been extended from six months to twelve months from the date of shipment. This will be applicable for imports made on or before July 31, 2020.

Measures to Ease Financial Stress

Extension of Regulatory Measures by another 3 Months
The RBI has extended the applicability of certain regulatory measures announced earlier, by another three months from June 1, 2020 till August 31, 2020. These measures will now be applicable for a total period of six months (i.e. from March 1, 2020 to August 31, 2020). The aforesaid regulatory measures are: (a) 3-month moratorium on term loan installments; (b) 3-month deferment of interest on working capital facilities; (c) easing of working capital financing requirements by reducing margins or reassessment of working capital cycle; (d) exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies; (e) extension of resolution timelines for stressed assets; and (f) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions. The lending institutions have been permitted to restore the margins for working capital to their original levels by March 31, 2021. Similarly, the measures pertaining to reassessment of working capital cycle are being extended up to March 31, 2021.

Provision to convert Interest on Working Capital into Interest Term Loan
Lending institutions have been allowed to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan, to be fully repaid during the course of the current financial year, ending March 31, 2021.

Increase of Group Exposure Limit to Increase Fund Flow to Corporates
The maximum credit which banks can extend to a particular corporate group has been increased from 25% to 30% of the bank’s eligible capital base. This has been done in order to enable corporates to meet their funding requirements from banks, in view of the current difficulties being faced by corporates in raising money from the markets. The increased limit will be applicable up to June 30, 2021.

Measures to ease financial constraints faced by State Governments

States allowed to borrow more from Consolidated Sinking Fund
The Consolidated Sinking Fund is being maintained by state governments as a buffer for repayment of their liabilities. The rules governing withdrawal from this Fund have now been relaxed, in order to enable states to enable them to repay their borrowings from the market, which become due in 2020-21. The change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021. The Governor added that the relaxation is being done, while ensuring that depletion of the Fund balance is done prudently.

Assessment of Economy

Presenting an assessment of the global economy, the Governor said that the macroeconomic and financial conditions are austere by all counts. He stated that the global economy is headed inexorably into a recession.

The domestic economy too has been severely impacted by the two-month lockdown, said the Governor. “The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones.” Demand has collapsed, production has come down, taking a toll on fiscal revenues. Private consumption has been dealt a severe blow.

The Governor said that agriculture and allied activities have provided a beacon of hope, amidst this encircling gloom. A ray of hope also comes from the forecast of a normal southwest monsoon in 2020 by the India Meteorological Department.

The Governor recalled that based on the incomplete data made available, food inflation, which had come down from its January 2020 peak for the second successive month in March, suddenly reversed and increased to 8.6% in April as supply disruptions took their toll, despite the current reduction in demand. India’s merchandise exports and imports suffered their worst slump in the last 30 years as COVID-19 paralysed world production and demand.

The Governor informed that the Monetary Policy Committee assessed that the inflation outlook is highly uncertain. The supply shock to food prices in April may persist for the next few months, depending upon the state of lockdown and the time taken to restore supply chains after relaxation. The elevated level of pulses inflation is worrisome, and warrants timely and swift supply management interventions, including a reappraisal of import duties.

Speaking of the road ahead for the economy, the Governor noted that the combined impact of demand compression and supply disruption will depress economic activity in the first half of the year. Assuming that economic activity gets restored in a phased manner, especially in the second half of this year, and taking into consideration favourable base effects, it is expected that the combination of fiscal, monetary and administrative measures being currently undertaken would create conditions for a gradual revival in activity in the second half of 2020-21.

Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards. Much will depend on how quickly the COVID curve flattens and begins to moderate.