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Wednesday, December 17, 2014

Through Tortuous Swings And Roundabouts...

  

Through Tortuous Swings And Roundabouts, The Government  Makes Progress

An’ losses on the roundabouts means profits on the swings!
Patrick R Chalmers, Poet and London Banker.

The Indian Public Sector is not only chronically inefficient, with just a few companies turning any kind of profit; but also substantially corrupt. The Private Sector, the Unorganised Sector, even the world of NGOs, is no better when it comes to venality.  

India, with all its promise, is ranked one of the worst places on earth to do business. All of it, in addition to the creaky and perpetually needy Government, is in urgent need of major reform, so that it becomes more lucrative to be honest.  

Fraud in PSU Banks in just the first three months of fiscal 2014, totals to 2,417crores; over half of the losses incurred by them in 2013-14 (4,183 crores).The sooner these PSU Banks dilute their equity to 52%, as sanctioned by the Cabinet recently, the better.

The PSU bank managements, often employed through political patronage, need to be ousted. Many bankers themselves are involved in the embezzlement.  Such massive losses of public money are unsustainable by the under-capitalised banks , and these numbers do not include the massive NPAs, in tens of thousands of crores; some of which are being rescheduled now.  Things are much better in the private and foreign banks, because they use a higher level of monitoring technology and data analytics to nip the problems in the bud.  Perhaps the RBI will show some zeal to push this privatisation through, and past all the vested interests.

In addition, a stupendous $ 94 billion in ‘illegal capital’ was apparently exported from India in 2012 alone, a lion’s share of it, due to deliberate misinvoicing. With periodic bans on capital inflows  into the bourses via the anonymous participatory notes, very little of this capital ever returns to this country.  So when are we going to finally go fully capital account convertible, to make such cheating redundant?

Meanwhile, the divestment targets of the Government, over Rs. 40,000 crores in this fiscal alone, is pending. The time left for this now is just 90 days, assuming the ongoing market correction bottoms out soon. As it stands, only a meagre Rs.1,500 crores has been realized from a 5% stake sale in SAIL so far. Finance Minister Arun Jaitley wants to push it through to gain credibility for the Government’s fiscal plans. This sale would meet earlier commitments, before the full budget in February 2015, which will act as a verdict on this Government’s ability to deliver in the short to medium term.  

Second- Generation Reform, except for diesel deregulation, has been non-existent so far. The FIIs are showing some frustration, retracing part of the exuberant run-up  in the indices over the last year. The rupee too is beginning to tank, thanks to lack of growth in the manufacturing sector, despite low inflation.

But still, all this could turn around dramatically.The results of efforts to initiate the GST, which, when operationalised, is expected to add up to 1.5% to GDP; and the Insurance Bill, with an estimated $ 10 billion, or more, to come in against the 49% foreign investment quota; if passed in this session of Parliament, would be a game changer. The Government’s Reform Agenda would receive a great boost. It would, in one stroke, set the scene for a resurgent stock market in 2015, and attract a significant amount of FDI as confidence in India grows.

The Railway Budget, to be presented this time by the acclaimed Suresh Prabhu, is expected to lay-out the first serious modernisation, reform and renewal measures, ever undertaken in independent India, for this venerable institution and lifeline for millions. The FDI expectations in this are massive; enough to drive up the GDP, and likely to feature Japan, China, and maybe France as well.

The outcome of the Assembly Elections in J&K and Jharkhand will also be known very soon. It may well  give the BJP an opportunity to form coalition Governments in both States, a big step up from its marginal presence in both.  And all these Assembly wins and near-wins, with more in prospect, will add to the Government’s numbers in the Raya Sabha, and solve its legislative problems  decisively.

It may appear to some, that the fringe elements within the Sangh Parivar have been queering the pitch for the Government. But the fragmented Opposition, rag, tag, and bobtail as it is, would have found another way to make it difficult anyway.

On the foreign front, though the economic scenario is far from settled, the thumping snap-poll win achieved by Shinzo Abe in Japan, a prominent friend of Prime Minister Modi, will give a fillip to Japanese investment in India as pledged.

All in all, as this year draws to a close, there are good things to look forward to in 2015.

(801 words)
December 17th, 2014
Gautam Mukherjee

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