The Economy Is In
Dire Straits
Finance Minister P. Chidambaram reacted to Narendra Modi’s
comment that educated economists in the Government have ruined the Indian economy
with predictable arrogance and sarcasm. He implied Narendra Modi had no idea of
economics ignoring his soaring vision for India and all the development the
challenger has wrought in his home state of Gujarat. But then, Mr. Chidambaram
finds himself forced to defend the indefensible for quite some time now.
The economy is truly in dire straits. Public Sector Banks are facing huge and
unprecedented bad debts and has effected lakhs of crores in write-offs as they
have been pressurised to lend to people in ‘priority sectors’. These are borrowers
with political connections who never had any intention of ever repaying their
debts.
Because the bank officials concerned have only carried out political
instructions, hardly any of them is being held accountable. So we have reams of
ruinous loans that threaten to collapse the banking sector.
The slight uptick in the economy being highlighted in
certain quarters is being caused by better farm output via a good monsoon and
high reserve prices. There is also a higher construction sector showing being
cited but this is statistical aberration which is actually not
representative. The real estate sector
is starved of both growth funds and demand at present, but can just about hold
out in the hope of a revival on the back of a Modi led BJP coalition win. This
indeed is the main hope for all of the Indian economy poised currently on the
brink of the abyss.
High prices of
everything combined with runaway inflation have drawn and quartered profits of
business and industry or caused precipitous losses. Individuals are
considerably worse off over the last couple of years. The rupee has lost a
third of its value, setting off a spiral towards pauperisation and household
budget pressures, as savings are savaged.
TheTata Group, the largest and most ethical private sector
behemoth of India, is earning 80% of its profits from abroad via just two of
its companies. TCS, its IT juggernaut, accounts for 59.5% by market value. Tata
Motors, read its JLR (Jaguar Land Rover) UK based subsidiary, composes another
20.45% of the market value, according to a revealing report in The Economic Times. All the other listed
and unlisted Tata companies in aggregate are not doing particularly well,
contributing very little or incurring losses.
Indian Hotels losses for first half 2013-14 are the same as
the whole of the previous year at over Rs. 400 crores! The Tata Motors India
operation contributed just over Rs. 300 crores in profit while the JLR part of
it contributed over Rs. 10,000 crores.
It is no wonder that business and industry is fleeing abroad
in order to survive the mismanagement of the UPA Government. A completely
different approach to governance has to emerge very soon if India and its
future prospects are not to suffer permanent damage.
There are still some commentators that argue that things are
improving. The Bank of America President and India Country Head Kaku Nahate
thinks there is a broad-based revival underway. She thinks the quality of it is
better than whatever green shoots are appearing in the beleaguered economies of
the West.
There is also a lively inflow of FII money into the stock
markets because of the high liquidity scenario in the US. This is indeed most
fortuitous and is also contributing to our foreign exchange reserves however
temporarily. What will happen to this inflow when the US tapering starts, if it
does, sometime in 2014, remains to be seen. What is evident is that it gives the stock
market routine jitters at any suggestion of it. But here again, a Narendra Modi
led BJP coalition government emerging in May 2014 will go a long way to sustain
any emerging optimism about India and its growth prospects. This is being borne
out by international brokerages, rating agencies and stock market pundits alike.
Meanwhile, the bad news continues to pile up relentlessly. The
fiscal deficit is already touching the full year estimate, implying it will be exceeded
by a third or so by the end of this financial year. This even as the current account
deficit has been coming down with lesser gold imports and better export
figures.
The best we can hope for the next few months is for is the
avoidance of an economic crisis brought on by the collapse of any major sector
of the economy. The threats are clear in the banking sector and in various over
leveraged corporate entities.
The fuel spiral has harmed the transportation business and
aviation quite substantially but with easing pressures in the Middle East,
things will probably improve. The real overall threat is the tremendous
misgovernance and political drift. This needs to remedy as soon as possible to
correct the perception that the Government is non-functional and in a funk at
the looming prospect of losing power. Of
course, this can only come about after the general elections in concrete terms
.And so the process grinds on.
The next stop to assess which way the electorate is going
will come after the slew of State Assembly elections are announced very
shortly.
(867 words)
December 2nd, 2013
Gautam Mukherjee
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