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When you point mistakes , instead of correcting the mistakes , egoistic dumbhead got upset .


(Comments of Rajendra Pratap Gupta , Expert Member (Mktg) , KVIC on the proposed Khadi D’vidend project )

 

01st, Feb, 2018

Hon’ble Members, KVIC, CEO, F.A. & Deputy CEOs.

 

CC:
PS to Hon’ble Union Minister (I/C), Ministry of MSME, Govt. of India
Secretary, Ministry of MSME
JS- ARI
FA – MSME

—————————————————————————————————————————————-

Dear Colleagues,

This is with regards to the document, ‘Khadi D’vidend’, handed over to us before lunch, during the Commission meeting on 23rd January, 2018. With no time left to discuss, we were asked to share our inputs, and a one day separate session was promised to discuss this project.

I have gone through the document, and I wish to submit the following comments for the consideration of the Commission. I seek your pardon in advance, for any inadvertent remarks:

Document flow / structure:

  1. Credits Section, Page 4: Inspiration has to be Mahatma Gandhi and Hon’ble PM Modi ji. It was Gandhi Ji’s vision for Gram Swaraj which had a Khadi component in it and it is the vision & support of the Hon’ble PM that Khadi has grown so much . I am surprised, that the reference to the founder of this movement and the Hon’ble PM is missing in the start, and the reference to Mahatma Gandhi is totally missing from this document itself. The highest official who vetted this document must resign on moral grounds or should be sacked for not mentioning the name of Mahatma Gandhi & the Hon’ble PM in this document’s introduction.
  2. Vision and Development be owed to the Hon’ble Minister, Shri Giriraj Ji, who has been tirelessly working and supporting the entire work of the Commission. The document talks about the vision of the Hon’ble Minister on page 13 & 19, but does not give credit to the Hon’ble Minister for the vision. It is a shameful act, people should refrain from stealing someone’s ideas and presenting it as theirs!!!
  3. Administrative and Financial diligence be owned up by the Chairman and his team who are responsible for making this document and doing the due diligence
  4. Page 13 refers to the discussions with experts and due diligence, but a cursory glance at the first few pages gives an impression of an inexperienced (on how KVIs operate) consultant who worked on this project and who does not even think appropriate to refer to Mahatma Gandhi, the founder of this movement!! Looks like, s/he does not know the history of KVIC. Please make a detailed presentation of the people / experts consulted and the inputs received from each of them.
  5. The intent of this ‘Khadi D’VIDEND’ document is similar to ‘Khadi Focus’ & the ‘Vision 2022’ documents, and hence, one has to carefully look at the direction we are taking. Another project in a few weeks after ‘Khadi Focus’ and ‘Khadi Vision 2022’, makes me a little concerned. Firstly, we need to see the outcome of the phase -1 of ‘Khadi Focus’ and ‘Khadi Vision 2022’ documents.

 

       6. I see that, wherever there is a financial involvement (money to be spent), there is always a rush to breeze past the Commission and start buying Charkha’s or looms . SFC meetings need to be given more time and taken more seriously.

To the best of my knowledge, charkha / loom distribution is one thing and utilization is another, and this point was raised by myself in the Commission meeting held at Ahmedabad on 23rd January.

We must see: a) How much capex has been spent on buying equipment in the past year, and what is the productivity gain per man hour or man day and more importantly, the income of the artisan. Please refer my note on the document ‘Khadi Focus’. The very basis of the Khadi Focus was wrong. It lacked basics and according to ‘Khadi Focus’, the income of the artisans would reduce by about 17 % despite a five- fold increase in Khadi turnover. With such faulty planning, why are we coming out again and again with some program or the other. Such activities (launching one program after another to make news!) will tarnish the image of the Government, which aspires to do real work. These half-baked programs to self-promote do no good to anyone and one day, will embarrass the PMO, when they learn the ground reality behind such moves. Actually, there should be one long term plan and that’s it, and its outcome must be closely monitored for its impact on a bi-monthly basis; which includes, Khadi, Village Industries, Bee Mission.

Viability issue: Profits

  1. There are many existing Khadi Institutions (KIs) that are gasping for breath and our first priority should be to revive the ones that can be revived and then, any new investment should happen for greenfield projects. Off and on, we get negative publicity in newspapers for the ‘dead’ or the ‘abandoned’ KIs. We must first survey the ‘weak’ KIs in the 115 districts and revive them. Surprisingly, this project calls for an end to the subsidy for Khadi and KIs (page 5). Without having any ‘risk mitigation’ strategy, this will put an end to the Khadi era in the next 5 years
  2. Also, during the last commission meeting, I have raised the issue of how many KVIC artisans have died in the past two years and no one has a record!! Then how genuine is our payment to artisans. And now, as per this plan, we are going to add more 80,000 charkha’s & 16000 Looms, empaneling new artisans? Are we building on a payment / MDA scam? Why are the artisans not Aadhar linked? Let us geo-tag all the Charkhas and Looms and Aadhar link all artisans.
  3. Also, during the last commission meeting, I have raised the issue of profitability of khadi institutions. This document mentions about 2000 KIs on page 10, and also talks about ‘Unwavering motivation to develop sustainable self-reliance among rural communities’. But there is no report available on how many of the 2000 KIs are making profits. My other commission members regularly post pictures of defunct KIs and not much is being done to help them revive.The first program should be to revive them and make them self-sustainable and then, make them earn decent profits
  4. Page 11. Please provide the a) institution wise b) product category wise and c) district –wise break-up of Rs.51,997 crore turnover mentioned here and what is the profit ?
  5. What is the basis of the claim that KVIC – the patron, and ‘original’ promotor, will recover 25% of the net margin generated. If the Charkha and looms are so profitable a proposition, we must discuss why our KIs are cribbing for lack of profits in this business.
  1. Page 27 states that the government will recover the investment costs @ 25% of the annual net income from the project, BUT, on page 24 it is stated, that the net profit will be 20 % on the figures quoted. I also understand that the 20 % net profit  will mean that people will have expenses to take care of, and loans to repay? I somehow feel a need for a complete actual model rollout to believe these numbers- we need a test pilot for this program.
  2. Data sets are confusing. A simple calculation of investment by mother institutions to the tune of Rs. 1.63 Crore for working capital (page 15) and capex of Rs.48 lac (40 looms @ Rs.45000 = Rs. 18 Lac & 200 Charkhas @ Rs.15000= Rs. 30 Lac) per village (and this does not include training and other associated costs), creates an employment for 250 persons (page 20), which means an investment of Rs. 84,400 per person (refer the document, page 15); whereas, the scenario quoted on page 25 is quite different. It quotes, per capita investment of Rs. 21,001.78 can yield a return of Rs. 7,320.00. Either I have got some numbers wrong or something is amiss

Plan and business Model

  1. The web of partnerships mentioned on page 14-15 makes me believe that some consultant has prepared this document without the basic understanding of how KVIs function, which markets they operate , and the legalities involved in making these web of partnerships work!!!
  2. Khadi Gaon Sansthan would be a legal entity? Please explain the structure.
  3. The document mentions on page 15 that, “400 villages from across the country will be selected though a participatory process involving different agencies and your letter no D.O. NO.CS/01-III/2018 dated 29th January, 2018 mentions it as a ‘Prestigious Project’, and requests the Commission members to identify the villages. These are quite confusing. Was the rural development member, Padamshree Ashok Bhagat ji involved in drafting the D’VIDEND document ?
  4. Please explain the need of KIP (Khadi Institutional Partner) and what is the financial and administrative relationship, refer Page 15.
  5. What is the criteria used to identify the KIs under KRDP. “Please detail out the ‘Set of criteria” as mentioned on page 15.

19. What do you mean by ‘Actual’ Khadi Business Partner (KBP), and why is this needed when there is a KIP? Please refer page 16 and point above on KIP. Also, as per page 27, KBP will have the responsibility of raising the working capital of Rs.1.63 crore. What is the basis? Any discussion with the potential KBP be shared with the Commission.

20. Organogram on page 28 is about Patronage and governance which rests with the Commission. KIP takes care of Administrative management, KBP takes care of Business Management and KGVS takes care of Production Management!!! Now, with over two decades of my board experience and running corporates, I am at a loss to understand why we need different entities for a) Governance b) Administrative Management c) Business Management d) Production Management? Looks like someone who made the document never ran a company as a CEO / MD / Chairman!!

 

  1. Execution (page 17) is an unrealistic scenario and ridden with complexities and I am little puzzled with the terminology as well like; ‘ Execution Agreement’ & ‘Enterprise Agreement’. I am sure we will need training on both these
  2. Of the total 6,38,596 villages, we have chosen 400 villages for this new model. What is the basis of 400 villages. Please detail out how you would identify the ‘Economically backward villages”, as mentioned on page 14 (what is the objective criteria)?
  3. Description on page 18 makes it very complex when the document talks about participation of Ministries, KIs, corporate entities, State Governments, and district administration. If we relate the mention of KIP (page 19) liaise with various ministries, state governments and district administration to initiate making sufficient provisions for the amenities in villages; such as the approach road, electricity, water, sanitation etc., all leading to a Khadi Gaon, and needs to be done till August 2018, then the project is quite un-realistic in its assumptions, and doesn’t take into consideration the inter-ministerial issues.

Timelines :

  1. Timelines are unrealistic and we can see from page 29, all deadlines mentioned for January are missed, so this project appears to be a ‘paper based concept’ that is not realistic and needs going back to the drawing board, and working with people with reasonable understanding of retail and Indian market.
  2. Page 29 mentions that bank will give working capital. What is the collateral? Which bank is giving Opex? What is the rate? Will it affect the 20 % profit margin? All these are unanswered from a hypothetical model quoted in this Khadi D’VIDEND
  3. The mention of the employment statistics on page 20 will hold good as long as the end product is profitable enough for people to meet their daily needs. What is the different thing in this model which is not there in the KIs model for the artisans to make profit. I am always wary of the numbers thrown, as these don’t stand the test, like the numbers in Khadi FOCUS document didn’t add up at all!
  4. Page 25 mentions spinners rate @ Rs.7.5 per hand. Does this need any approval, as when the Commission increased the rate in the Sabarmati meeting, it was not approved by the Ministry
  5. Page 13 of the document says that the 31 % of the rural artisans are women, but the note No: DK(KPM)/Five year plan/ Gen/2017-18 dated 08-01-2018 says, ‘most of the rural artisans are women’. The facts and figures have to be double-checked before being presented to the Commission

Scalability:

  1. W.R.T. the ‘Organizational Wealth’ of training institutes as mentioned on page 21, Dr. Sheila Rai’s inputs would be important. Though I have my own doubts on training 2000 people and the costs involved-given the timelines, but I will let the expert member (Training) comment
  2. Page 23 mentions production of 512 lakh meters fabric annually. But do we know how much fabric is produced by the existing 2000 KIs? Please make a presentation on the same. Also, during the last Commission meeting, the director (Mr. Khandelwal) looking after Raw Materials, had indicated that we have a crisis of procuring raw material for the existing production needs. How come we serve the demand of raw materials for the additional 80,000 charkha’s and 16000 looms? Has this challenge been factored?
  1. Page 38 does not give any assumptions and the basis for the numbers like 60 % will be converted into premier shirting, 40 % will be converted into ladies salwar, chudidars etc. ?
  2. Page 42 mentions about zonal distribution. What about the North East? We have seen the issues raised by the Commission member from NE about the shortage of staff. Despite this, all such paper projections have been made without a plan? West with a much larger population has projected only 45 ‘Khadi Goans’ and N.E. has 38? We know that the west is amongst the worst performing region as per the presentation made in the last commission meeting. This is not justifiable
  3. Page number 26 talks of three definitive phases i.e.; establishment, development and sustainability. This is a confusing statement. Need a detailed presentation on this.
  4. There is no data to support how much a typical village earns and how it spends and what are its needs? Given all these facts, this project, in my view is just a photo-op and a press-release. If some elements of this project are to be taken, they must be backed by a test pilot and then a scaled up pilot, iterations included in the phase II and then, a full blown roll out. Taxpayers money cannot be blown away on the whims and fancies of few, based on a concept paper with no experience of ground reality

I would suggest that you have a look at the way the marketing department has initiated the projects. There is a lot to learn on how there was an overall vision, backed by a rationale and a thinking and then, we took up some key initiatives.

This plan is devoid of any field work or realistic experience and is too bookish in context and over-complicated with no clear plan, and over-complicated structure.

Since this program is about villages, inputs should have been taken from Mr. Ashok Bhagat and other members who are working in the villages

My genuine concerns are around the following, and am sure the team will clear them in the meeting and make this project simpler, financially sound and fool-proof in implementation:

A. Concept
B. Planning and business model C. Timelines
D. Viability & Scale

In fact, this program should have been started in the first 3 months of re-constituting the commission and not at the fag-end, given the timelines. It will only lead to buying of equipment, spending and thereafter, it will be tough to find any business continuity and outcome.

Lastly, on page 30 in the conclusion, the document says, “Khadi D’VIDEND’ is also an integral part of the Khadi Vision 2022’. If so is the case, why this has been presented as a separate program with a vision etc.? This confounds the confusion. This ideally should be subsumed into Vision 2022, and not as a separate program.

 

My suggestions on the way forward:

  1. Under Vision 2022; segregate-zone-wise, and pick up 2022 villages across 115 backward districts identified by NITI Aayog
  2. Scan them for existing KIs which are ‘Weak’ or ‘Dysfunctional’
  3. Adopt a ‘Zonal Level- Cluster Approach’ for leverage and logistics. Also, this can help in various other functions like group-sourcing, marketing and logistics
  4. Prepare a revival plan with Solar Charkha’s & Looms with forward linkages
  5. Such KIs should be allocated 25 % of the KVIC ‘exhibitions’ (subject to their willingness to participate), so that they can sell and promote their products
  6. Their quota for government supplies be mapped, and accordingly incentivized to supply the government contracts and have a consistent source of income

Please refer the note No: DK(KPM)/Five year plan/ Gen/2017-18 dated 08-01-2018 that states that Khadi is facing stiff competition from other sectors of textile industry and its market share (production) has been 0.5 % of the overall textile market in the country. This issue needs to be discussed as an overall strategy of Vision 2022.

Further, in the same note, the break-up of the 2011 KIs is given which states that;

  • 4 have a turnover of more than 15 crore (0.19 %)
  • 6 have turnover between 10-15 crore (0.29 %)
  • 27 have turnover between 5-10 crore (1.34 %)
  • 1662 (82.64 %) have a turnover of less than a crore.We have to turnaround these KIs and take them to the new level. Answers don’t lie in sitting in Bombay or Delhi offices, but those members who are willing, are free to join me to meet KIs across the spectrum, and evolve a robust plan to turnaround these institutions which are having a turnover of less than Rs. 1 crore. We need to get them to be Rs.5 crore. Those with Rs.15 crore turnover need to cross Rs. 50 crore. Else, someone will come with a new 3D printing technology and kill this Khadi forever. Those members who are willing to join me, please contact me. Let us do our groundwork in March-April and present the turnaround report in May–June to the Commission. Above all, we need to add more youth to the KIs movementCommission cell is requested to provide the list of all 2011 KIs with turnover, address, phone number and mobile numbers of the key officials of these KIs. This must be made available within 10 days of the receipt of the email. I believe this data is available with the HQ and must be ‘emailed’ ASAP – Mr. S.N.Shukla, please do the needful .Lastly, all documents like ‘Khadi Focus’, ‘Vision 2022’, and ‘Khadi D’VIDEND’ should be first placed before the Commission members, so that such glaring lapses can be avoided

    Thanks & regards

    Rajendra Pratap Gupta
    Expert Member – Marketing, KVIC , &
    Member , National Khadi & Village Industries Board

  • P.N: I am out of country till 6th Feb, but available on email / phone

 

Food Security Bill – Another bill for poor and dollars for congress


Please ask the Hon’ble PM to give a statement on a scheme similar to the Food security bill launched with much fanfare in 1975 to reduce malnutrition . This scheme was called the Integrated Child Development Scheme (ICDS) . It has been around for the past 38 years and now again another bill to remove malnutrition ?  Despite this scheme being around for about four decades, the scenario is as mentioned below ;

It is a matter of serious concern that the mean per capita consumption of calories has never crossed the minimum threshold  for intake ( 2400 Kcal in rural and 2100 Kcal in urban areas), and still about 3/4th of the households do not consumer the minimum calorific intake (Dr.D.K.Taneja, 2013, p. 21)

Protein Energy Malnutrition (PEM) most commonly prevalent in India . 45.3 percent of children under 3 years are under weight as per NFHS -3.  Also, as per NFHS-3 , 33 percent of adult women and 28.1 percent of adult men have below normal BMI (Dr.D.K.Taneja, 2013, p. 301)

According to the information procured from the Ministry of Women and Child development via RTI through their letter dated 25 July 2013 ( F. No. 10-1/2011-CD.II(Pt.II)

Total money spend in 11th plan on ICDS was Rs.43829.53 Crore

Total money spent in 2012-13 is 15701.50 crore

During the 12th Five Year Plan, a total approved allocation of Rs. 1,23,580 crore has been made for the scheme. Any additional requirement of funds under ICDS Scheme can be met through Supplementary Demands for Grants and savings. ( Source http://pib.nic.in/newsite/erelease.aspx?relid=93731 )

I think food security bill means  ‘another bill for the poor and dollars for the congress’ .

This bill might be another money-making scheme in the name of aam aadmi .. Already, all the FM channels have been bombarded with advertisements for the Food security bill making the intentions of congress very clear that this is a poll gimmick

Rajendra Pratap Gupta

http://www.commonmansblog.com

India entering a phase of recession


Recently , very few people noticed a four line news that , Moody’s Investor Service downgraded the so-called financial strengths ratings and the baseline credit assessments of;

1. Bank of Baroda

2. Canara Bank

3. Punjab National Bank

The outlook on Union Bank of India has also been changed to negative .

This is the first indicator of ‘Gloom & Doom’ that is set to hit the economy soon. Somehow , India has missed the recession in 2008 , but India will now enter into recessionary phase that is likely to last between 3 -6 years .

Somehow , the investments that came due to ‘overselling’ the India story like the SEZs, power plants , airports are fading off and most of the infrastructure companies are under a huge pile of debt. More NPAs and job losses will follow .

I see that not a single politician or an economist can put his head out and speak the truth that India is hitting a phase of recession ( probably , they do not know it , like the American crisis ). From a high of 9 per cent growth , we are already down by 45 % in our GDP growth . How else do we define recession ? Are we already not into a recession with companies laying off people every month and our growth slowing down by 45 % ?

Let us accept the situation and plan now. Else , India will be headed for an unprecedented crisis. I am not more worried with 2014 election as much as the rapidly falling economy . On many occasions ,i have pointed my friends across political parties that they would be better off losing 2014 elections than winning them , as there is enormous crisis to be faced, and a lot of dirty and hard work to be done to reverse the falling fortunes of this country and it is not going to be an easy 2014 for politics and politicians .

Let us consider this situation ;

India needs foreign exchange – USD . This can come due to ;

  1. Exports
  2. FDI
  3. Reduced imports

Now , exports might start shrinking or remain the same , so not much can be done on that front .

FDI comes in India for

1. Either setting up manufacturing

2. Investment in corporates / stock markets

All the money that comes in FDI needs to produce profits due to either exports or domestic consumption . Both are not going to happen the way investors look at ROI or IRR on their investments as the local consumption story is missing . India has already passed off 100s of millions of poor as ‘middle income aspirational class wanting to spend’ , and this was the biggest fraud of Sonia & MMS led congress government and 100s of corporates have lost millions of dollars every month and are now exiting India or slowing down

Only way the foreigners can make money is dabbling billions of USD in stock markets . So, now FDI’s constitute 11.2 % of GDP in India (2011-12) , and FIIs can play a spoil sport for Indian Economy and generate a balance of payment crisis in any trading hour !

Also, how i could i miss writing about another direct cash transfer scheme of Congress ! Party has got a new way to make money ‘ CSR spending’ under the new companies act .Now politicians can ask corporates for CSR spending and bang ! You know why this bill got passed so easily. And if i am a corporate and i wish to get a license or avoid something  OR  seeking favours like Robber Vadra,  i will give money under CSR to a politician’s NGO….. Wow , another MNAREGA, NRHM and a wonderful legal cash transfer scheme , So who says that XYZ paid bribes , now you cannot prove it , it was just a CSR spending . So, corporates , what are you waiting for , come buy your Rajya Sabha seat , it just cost 100 crores in CSR spending ! Come and block your seats now , it is election year , and sweet -legal deals available through all state leaders and through various national schemes , we have legalised bribes and you have an option to chose your preferred medium . Hurry, this is the last congress government.  Hurry up, come , before we run out of time as Elections are  likely in November

BTW, time for any sensible politician to come out with a job creation and wealth generation model for India before thinking of FDI or going back to 9 per cent growth

Earlier we realise , the better it is . India is into a recession now !

Rajendra Pratap Gupta

http://www.commonmansblog.com

Indian Economy – econoquake waiting to happen, with disastrous seismic cracks


Indian Economy – econoquake waiting to happen, with disastrous seismic cracks

It is a known fact that when symptoms become visible for a chronic disease, complications are tough to treat and the disease is in an advanced stage, but if the disease is diagnosed in earlier stages, the diseases are easy to treat and cure.  In India, now symptoms like fiscal deficit, current account deficit, increasing NPAs, inflation, unemployment, lack of investment sentiment, withdrawing of investors etc. are symptoms of a economic earth quake (what I call as econoquake), and it is like a disaster in slow motion for India.

The Indian economy has passed through its worst phase after independence since 2004 and the rot continues to grow.

USD vs INR

Here are some symptoms that tell how serious is the disease; Indian rupee was trading at 8 Rupee to a dollar in 1973, and has become Rs. 60 to a dollar.  Does it not indicate that valuations of this country, and the fact that the economy has weakened by about 750 % in the past 40 years!  Ideally, we should have grown and become 1 Rs. to 1 US $, but the poor leadership from these ‘Text Book economists’ (Manmohan Singh, Chidambaram, Montek, Subbarao) have brought down this great nation.  Let us analyze a little more in detail

All the data or facts I am quoting are from credible sources and are publicily accessible . (http://blogs.economictimes.indiatimes.com/Whathappensif/entry/rbi-data-shows-how-upa-killed-the-rupee?fb_action_ids=10151534667996725)

foreign-debt-trebles-in-a-d

If the 10-year RBI data on short-term foreign debt is analyzed, it is fairly obvious that the UPA destroyed the value of the Rupee.  In 2004 when the Vajpayee Government was voted out, the foreign debt at $ 112.4 billion was well covered by the forex reserves.  Nine years later it has grown by 350 percent to $ 390 billion and the forex reserves cover falls 25 percent short.

over-50-percent-debt-is-sho

However the rise of foreign debt is not the only reason why the Rupee collapsed from Rs 39 to a dollar to Rs 61 for a dollar during the intervening period.  Foreign debt is a necessary evil that is needed by developing countries to push forward their needs to fund foreign capital funded infrastructure.  Usually such addition of infrastructure results in long-term asset building that adds to improved productivity of the nation.  However in India’s case the rise of external debt has been primarily to fund the current account deficits catering largely to the working capital needs and funded through the short-term loan at higher interest rates.  This short-term debt component was very comfortable at just 3.9 percent of the Forex reserves when the NDA was voted out of power nine years ago.  By 2009 when the UPA II was re- elected it was around 17.2 percent and by March 2013 the short-term external debt rose to a whopping 33.1 percent of the Forex reserves, which had fallen to $ 292.65 billion.  With the reserves further dropping to $ 280.18 billion following RBI’s intervention to stem the Rupee slide in July, the ratio would have worsened.

Debt 1

Short term debts and the External Commercial Borrowings that would need repayment during this FY 2013-14 is high and would cause large outflow of dollars and put pressure on the currency intermittently.  For example during May 22 and June 19 there was a net debt outflow of $4.7 billion, one of the prime reasons why Rupee tanked.

These ECB’s and short-term debt have grown to an enormous 56 percent of the total debt by March 2013 almost 2.5 times what they were when the UPA came to power nine years ago.  As per RBI data short term debt payable during this Financial year is $ 96.7 billion while ECB’s with 6 month to 1 year maturity that need to be repaid are around $ 21 billion, and NRI deposits maturing during the year are $49 billion.  The Rupee is catching a cold because the total foreign debt to be repaid this year works out to a massive $172 billion that is around two-thirds the foreign exchange reserves.  Even if interim measures to stop speculation are taking by the RBI it will not address the inherent weakness of the system.  Rather it may enhance volatility, as speculative traders if restricted will move offshore to short the Rupee.

USD vs Chinese Yuan

Similarly, if we compare our neighbor, China with larger population, Chinese currency has become strong.  Though, I must admit, it is not a fair comparison!  But the essence is, India is also intervening to control the rupee and Chinese central bank also intervenes, but I guess they have done a better job and the Chinese currency has strengthened compared to US dollar over the past decade and the Indian rupee has not just been weakened, it has been ‘hammered’, and continues to be the worst performing currency in Asia.  We can compare Malaysian Ringgit, Singapore dollar or UAE Dirham.  All these currencies have strengthened against the Indian rupee

Why rupee will continue to fall?

Domestic markets are failing.

CDR gives an indication that the corporate sector is crashing!

http://www.livemint.com/Industry/h7u6wQngeSZ6jL8MfCBpGL/Restructured-loans-cross-227-trillion-pace-slows.html

The latest data from the CDR cell suggests that Indian banks added Rs. 15,016 Crore of restructured loans in the March quarter, about Rs. 9,000 Crore less than what they had done in the pre ceding quarter.  On a cumulative basis, total restructured loans crossed Rs. 2.27 trillion, or 4.4% of the total loans given by Indian banks.

Gross non-performing assets (NPAs) of 40 listed Indian banks rose to Rs.1.79 trillion in December fromRs.1.25 trillion a year ago, an increase of 43.1%.  In the past, the Reserve Bank of India (RBI) had cautioned banks about the need for enhanced risk assessment tools to monitor loan quality.

Defaults in Agricultural credit in another bubble?

http://www.livemint.com/Industry/ph30HumD1FPAGaBj0XCOyH/Kisan-Credit-Cards-Bad-loan-bubble-waiting-to-burst.html

A surge in exposure to farm debt through Kisan Credit Cards (KCCs) could emerge as a risk for India’s state-run banks, according to experts.

Subsidized loans are given to farmers through KCCs by state-owned banks.  Until March 2012, the outstanding amount on such loans was Rs.1.6 trillion through 20.3 million cards, as per the latest Reserve Bank of India (RBI) data.  This may have risen to around Rs.2 trillion, bankers said.

Agriculture is one of the largest sources of bad loans for most banks.  It is contributing 9.72% to the gross NPAs of SBI and 7% of Central Bank of India.  The nation’s largest lender SBI has the largest gross NPAs —Rs.53, 457.79 Crore, or 5.3% of loans, followed by Punjab National Bank (Rs.13, 997.82 Crore, or 4.61% of loans), Central Bank of India (Rs.8, 938.47 Crore, or 5.64% of loans) and UCO Bank (Rs.6, 711.29 Crore, or 5.53% of loans).

FDI is like mirage for UPA

Government’s efforts to promote India as an investment destination does not seem to be yielding fruits as FDI inflows registered 38 per cent decline to $22.42 billion in 2012-13 compared to the previous year.

It is clear that the UPA government is on the ventilator and no sensible MNC or investor is going to even announce investment for during this government.  Knowing well, that the next government will certainly not be either from congress or due to its support.  That is one major reason why we have seen in the last week POSCO cancelled its Rs. 30,000 Crore steel plant on July 16th, L.N.Mittal cancelled its Rs. 50,000 Crore steel plant on 17th July 2013.  This is a loss of Rs. 80,000 Crore worth of investment committed to India.  Normally, when the government is about to be re-elected, we know that practically, all the companies wants to wash its hands in Ganges, and get speedy approvals for obvious reasons.  A ‘Needy’ political party in power wants to ‘cash in’ and so does the ‘greedy’ corporates.  We have seen how business leaders get national awards like padamshree and padmavibhushan in the election years or the year preceding the election year … but this time, the scene is different.  No sensible business house, no matter how ‘greedy’ it is, will commit any investment before the next general elections.  So, I see no respite to Indian economy till 2014 end or may be, 2015.

FII’s the real culprits for rupee slide?  May be!

FDI Inflows in India and Outflows from India from 2007 to 2012: (amount in US$ billion)

 

FDI Inflows to India

FDI Outflows from India

2008-09

2009-10

2010-11

2011-12

 

2008-09

2009-10

2010-11

2011-12

 

Total

43.4

35.6

27.4

36.5

 

19.3

15.9

15.3

12.6

 

As a % of GDP

3.4%

2.6%

1.7%

2.0%

 

1.5%

1.2%

0.9%

0.7%

 

FDI Investment Stocks

125.2

171.4

204.7

203.9

 

63.3

80.9

96.4

108.8

 

FDI Investments Stocks as % of GDP

9.8%

12.7%

12.6%

11.2%

 

4.9%

6.0%

5.9%

6.0%

 

Country

2008-09

2009-10

2010-11

2011-12

Total

2008-09

2009-10

2010-11

2011-12

Total

Singapore

3.42

2.38

1.70

4.31

11.81

4.06

4.20

3.99

1.86

14.11

Mauritius

11.04

10.34

6.98

8.92

37.28

2.08

2.15

5.08

2.27

11.57

Netherlands

0.85

0.90

1.21

1.16

4.12

2.79

1.53

1.52

0.70

6.54

USA

1.80

1.94

1.17

0.91

5.82

1.02

0.87

1.21

0.87

3.97

UAE

0.25

0.63

0.34

0.33

1.55

0.63

0.64

0.86

0.38

2.51

British Virgin Islands

No data

No data

No data

No data

No data

0.00

0.75

0.28

0.52

1.55

UK

0.83

0.66

0.76

2.75

5.00

0.35

0.34

0.40

0.44

1.53

Cayman Islands

No data

No data

No data

No data

No data

0.00

0.04

0.44

0.14

0.62

Hong Kong

No data

No data

No data

No data

No data

0.00

0.00

0.16

0.31

0.46

Switzerland

No data

No data

No data

No data

No data

0.00

0.00

0.25

0.16

0.41

Other Countries

No data

No data

No data

No data

No data

7.65

3.19

2.65

1.23

14.71

Japan

0.41

1.18

1.56

2.75

5.90

No data

No data

No data

No data

No data

Cyprus

1.30

1.63

0.91

1.32

5.16

No data

No data

No data

No data

No data

Germany

0.60

0.63

0.20

1.46

2.89

No data

No data

No data

No data

No data

France

0.46

0.30

0.73

0.47

1.96

No data

No data

No data

No data

No data

References:

(1) OECD data on FDI in Figures as on January 15, 2013.

(2) Zenith International Journal of Business Economics and Management Research, July 2012.

(3) World Investment Report various issues.

(4) If there are any inadvertent errors in the data, it is regretted

Please see how foreigners are investing money in stock markets, and have taken over 100 Billion USD (108.8 Billion dollars, Which is 6 % of India’s GDP) outside India just in one year (2011-12).

How will our Finance Minister address the Balance of payment issue, which needs 75 billion USD?

11 % of GDP is in the hands of FDI / FIIs?  Are we safe?  Is our growth trickling down or trickling outward?  This is in complete deviation of the path of a self-reliant India propounded by our freedom fighters.  We are not building a West India company on the lines of the erstwhile East India Company?  Time to take a serious look at the data and take concrete actions.  It is a wake-up-call for India

Dr.Akash Mehta compiled this data on FII’s on my request.  Acknowledged with thanks Dr.Mehta.

Vehicle sales – another symptom of the anemic economy

Car sales in India fell for a record eighth month in row in June with a dip of 9 percent as economic slowdown and low consumer sentiments continue to hit demand, prompting industry body SIAM to seek stimulus package for the automobile sector from the government.

With actual sales in the first quarter of this fiscal turning out to be wide off the mark from what it had forecast in April, Society of Indian Automobile Manufacturers (SIAM) stayed away from revising sales projections it had made in April this year and stated that even those targets were unlikely to be met, except in two-wheeler segment.

According to the latest figures, domestic car sales stood at 1,39,632 units in June as against 1,53,450 units in the same month last year.

We know the problem.  So what next?

India has focused too much on FDI / FII’s to bring in dollars, and the capitalists countries are like Shylock (Merchant of Venice).  They will extract their pound of flesh. So, India got quick dollars from FII’s, and FII’s made quicker returns and exited the markets and today FIIs have 11 % of the investment in stocks, as I have given the data above.  The fact is that, a clutch of foreign investors can destabilize India by withdrawing their investment.  FIIs are short-term hedgers and they damage infringe long-term damage to our currency & country.  Small retail investors become bankrupt because of FIIs.  What came out as a myopic solution to our fiscal deficit and balance of payment crises has today turned into a major national security issue?

Economic Competitiveness: We need to focus on economic competitiveness.  We have lost in the last few decades.

Areas to focus, agriculture – we need to amulify agriculture (taking a cue from Amul’s experiment of cooperative movement in milk).  We need to support farmers.  Make a paradigm shift in modernizing agriculture, training, and equipping farmers to set up SME food processing units.  This should make us the top most processed food country in the world in the next decade.  The national highways project of Shri.  Vajpayee (Golden Quadrilateral Project) was the best step taken since independence for inclusive growth, and this must be pursued aggressively.  During NDA regime the road building was 20 KMs a day and under UPA it is down to a KM or two.  The Atal Behari Vajpayee government bequeathed a robust economy to the UPA.  Remember that the growth rate registered in 2003-04, the last year of the NDA regime, was an impressive 8.5%.  Foreign exchange reserves were plentiful.  General prices were well under control.  Share markets were booming.  And there was a general sense of well-being. Work on the Golden Quadrilateral highway linking four corners of India was on in full swing.  And various public infrastructure projects under the Public-Private-Partnership model were proceeding without any hitch.

Now, in the last year of the UPA-II, we are back to the Hindu rate of growth.  If the economy logs anything above 5% it would be a miracle

(http://www.sunday-guardian.com/analysis/back-to-where-the-economy-was-during-the-early-90s)

My personal prediction is, that we will be below 4 % in growth soon if the regime continues the same way and I have predicted it long back

(http://commonmansblog.com/2013/06/04/the-titanic-is-sinking-can-we-do-something/)

Tourism- spiritual tourism – Tourism is the next best bet after agriculture and we must focus on it by innovating in this sector.  I have detailed plan for creating millions of jobs and billions of dollars through employing matriculate youths in this sector.

Intellectual property (IP): India has become a sweatshop and nothing wrong in it, but we need to focus on building IP in science, technology, defense, & agriculture.  It is shame that India has not even built a software platform (operating system) and still relies on Microsoft and IOS.  Indians in software arena should take a challenge and build the best operating system rather than spending billions of dollars buying MS Office and Apple operating system or Google.  We need a search engine developed by Indians.  India spends billions of dollars on universities but the IP registered by just one company Texas Instruments (for the sake of giving example I am quoting Texas Instruments) from its Bangalore office might exceed the patents granted to researchers in Indian universities.  We need a complete over haul in our education systems that give the world the most valuable IPs, which can be monetized.

Geographical indicators (GI’s): We all are aware that many Geographical Indications like Darjeeling Tea, Mysore Silk, and Champagne across the world have become premium global products.  While protection of GIs is very important, it is all the more important to extract economic benefit out of registered GIs.  In India we have 184 Indian GIs has been registered till now but hardly a few of them have accessed global market.

On the other hand we are also seeing growing number of GIs from other countries like Peruvian Pisco, Scotch whisky, Cognac, Prosciutto de Parma, Tequila etc. have registered in India.

While it is understood that not every Indian GI has the potential of capturing global market, but many of them have.  However we have not seen enough initiative and support system for such promising GIs having healthy export market.  There must be a plan to build on the legacy of these GI’s, and targeted GI must be turned into a USD 10 billion global markets for Indians.

21062107

Boost manufacturing with a focus on SME’s:  Women’s employment has taken an alarming dip in rural areas in the past two years, a government survey has revealed.  In jobs that are done for ‘the major part of the year’, rural women lost a staggering 9.1 million jobs.  This emerges from comparing employment data of two consecutive surveys conducted by the National Sample Survey Organization (NSSO) in 2009-10 and 2011-12.  NDA, during 1999-2004, 60.7 million jobs were created while UPA Government, during 2004-2009, created only 2.7 million jobs.  (Data source: National Sample Survey Office).

Organic farming, Herbals & Nutraceuticals: The whole world is moving to traditional and complimentary medicine and India has a scientific traditional medicine dating back to 5000 years.  We can create rotation farming for herbals and organic foods and create millions of jobs and billions of dollars worth of exports.

Foreign policy: Neighbors can help.  We need not be hooked to G8 / 14/ 20.  It is time to have a strategic alliance in Asia, A-2 (India and China) on the lines of G-4, we need to create A-4, the big 4 Asian economies must come together to lead Asia.  This is where India must initiate moving from G-20 to A-4.

Lastly, it would not be wrong to say that lakhs of small and medium enterprises , and even 27 big corporate houses have 41 trillion rupee debts (http://www.livemint.com/Companies/7TnLNfHilL2UOkPVNku8UM/Kumar-Mangalam-Birla-is-the-highestpaid-director.html )  . So , this is a steriod induced survival for most of the corporate entitites be it small or big .More pain is expected by this year end. So the government needs to keeps its head low and overheads lower and find solutions to avoid NPA’s . Though, it is an another thing, that UPA has in itself become an NPA.

Rajendra Pratap Gupta

www.commonmansblog.com

The Titanic is Sinking . Can we do something ?


Global Economic Outlook 2013

http://www.conference-board.org/data/globaloutlook.cfm

The global economy has yet to shake off the fallout from the crisis of 2008-2009. Global growth dropped to almost 3 percent in 2012, which indicates that about a half a percentage point has been shaved off the long-term trend since the crisis emerged. This slowing trend will likely continue. Mature economies are still healing the scars of the 2008-2009 crisis. But unlike in 2010 and 2011, emerging markets did not pick up the slack in 2012, and won’t do so in 2013. Uncertainty across the regions – from the post-election ‘fiscal debate’ question in the U.S. to the Chinese leadership transition and reforms in the Euro Area – will continue to have global impacts in sluggish trade and tepid foreign direct investment.

Main results:

  • Across the advanced economies, the Outlook predicts 1.2 percent growth in 2013, compared to 1.1 percent in 2012. The slight uptick is largely due to Europe, which is expected to return to very slow growth of 0.3 percent after the -0.2 percent contraction in 2012. U.S. growth is expected to fall from 2.2 percent in 2012 to 1.6 percent in 2013.
  • In the medium-term, the outlook expects the U.S. and other advanced economies to go some ways toward closing large output gaps – that is, the difference between current output and the level of output an economy can produce in a noninflationary way, given the size of its labor force and its potential to invest in and create technological progress. The current output gap is a result of weak demand due to the 2008-2009 crisis. This development should allow the U.S. to average 2.3 percent annual growth during 2013-2018 before falling to 2.0 percent in 2019-2025. In the same two periods, Japan is expected to grow at 0.9 percent per annum.
  • A more significant slowdown is expected for less mature economies over the next year – and beyond. Overall, growth in developing and emerging economies is projected to drop from 5.5 percent in 2012 to 5.0 percent in 2013, with growth falling in China from 7.8 to 7.5 percent and in India from 5.5 to 4.7 percent. From 2019-2025 emerging and developing countries are projected to grow at 3.3 percent.
  • The long-term global slowdown we project to 2025 will be driven largely by structural transformations in the emerging economies. As China, India, Brazil, and others mature from rapid, investment-intensive ‘catch-up’ growth to a more balanced model, the structural ‘speed limits’ of their economies are likely to decline, bringing down global growth despite the recovery we expect in advanced economies after 2013.

StraightTalk®

Global Outlook for Growth of Gross Domestic Product, 2013-2025 (May 2013)

Europe includes all 27 current members of the European Union, as well as Iceland, Norway, and Switzerland.
**Other advanced includes Canada, Israel, Korea, Australia, Taiwan, Hong Kong, Singapore, and New Zealand.
***Southeast Europe includes Albania, Bosnia & Herzegovina, Croatia, Macedonia, Serbia & Montenegro, and Turkey.
Source: The Conference Board Global Economic Outlook 2013, May 2013 update

Global Outlook for Growth of Gross Domestic Product, 1996-2013 (May 2013)

1996 – 2005

2006 – 2012

2012

2013

Distribution of World Output 2012

GDP Growth

Contribution to World GDP growth****

Projected GDP Growth

Contribution to World GDP growth****

Projected GDP Growth

Contribution to World GDP growth****

Projected GDP Growth

Contribution to World GDP growth****

United States

18.2%

3.3

0.7

1.1

0.2

2.2

0.4

1.6

0.3

Europe*

20.3%

2.4

0.6

0.9

0.2

-0.2

0.0

0.3

0.1

of which:
Euro Area

13.8%

2.2

0.7

-0.5

0.1

Japan

5.6%

1.0

0.1

0.2

0.0

0.6

0.0

0.8

0.0

Other advanced**

7.2%

4.0

0.3

3.0

0.2

2.2

0.2

2.8

0.2

Advanced Economies

51.3%

2.7

1.7

1.2

0.7

1.1

0.6

1.2

0.6

China

16.4%

8.1

0.6

10.4

1.3

7.8

1.2

7.5

1.2

India

6.3%

6.5

0.3

7.8

0.4

5.5

0.3

4.7

0.3

Other developing Asia

5.3%

3.9

0.2

5.0

0.2

5.3

0.3

5.0

0.3

Latin America

7.7%

2.8

0.2

3.7

0.3

3.1

0.2

3.0

0.2

Middle East

3.7%

4.6

0.1

4.3

0.2

5.5

0.2

2.2

0.1

Africa

3.3%

4.6

0.1

4.7

0.1

3.7

0.1

4.2

0.1

Russia, Central Asia and Southeast Europe***

5.9%

4.0

0.2

4.0

0.2

3.6

0.2

2.9

0.2

Emerging and Developing Economies

48.7%

5.0

1.8

6.5

2.8

5.5

2.6

5.0

2.4

World Total

100.0%

3.6

3.5

3.2

3.0

*Europe includes all 27 current members of the European Union, as well as Iceland, Norway, and Switzerland.
**Other advanced includes Canada, Israel, Korea, Australia, Taiwan, Hong Kong, Singapore, and New Zealand.
***Southeast Europe includes Albania, Bosnia & Herzegovina, Croatia, Macedonia, and Serbia & Montenegro, and Turkey..
****The percentage contributions to global growth are computed as log differences and therefore do not exactly add up to the percentage growth rate for the world economy.
Source: The Conference Board Global Economic Outlook, May 2013 update.

Comparison of Base Scenario with Optimistic and Pessimistic Scenarios, 2013 – 2025 (May 2013)

2013 – 2018

2019 – 2025

GDP Growth in Optimistic Scenario

GDP Growth in Base Scenario

GDP Growth in Pessimistic Scenario

GDP Growth in Optimistic Scenario

GDP Growth in Base Scenario

GDP Growth in Pessimistic Scenario

Distribution of World Output 2025

United States

2.5

2.3

2.1

2.4

2.0

1.6

18.3%

Europe*

1.5

1.2

0.8

1.6

1.3

0.9

17.4%

of which:
Euro Area

1.4

1.1

0.8

1.6

1.3

1.0

12.0%

Japan

1.3

0.9

0.5

1.2

0.9

0.7

4.8%

Other advanced**

3.5

2.6

1.7

2.5

1.8

1.2

7.3%

Advanced Economies

2.1

1.8

1.4

2.0

1.6

1.2

47.8%

China

8.0

5.8

3.7

4.9

3.7

2.5

22.7%

India

5.7

4.7

3.6

4.5

3.8

3.2

8.2%

Other developing Asia

6.4

5.0

3.6

5.5

4.4

3.2

4.9%

Latin America

3.9

3.2

2.5

3.4

2.8

2.2

7.1%

Middle East

2.7

2.5

2.3

2.5

2.3

2.0

2.5%

Africa

5.1

4.1

3.2

5.0

4.1

3.2

2.6%

Russia, Central Asia and Southeast Europe***

3.1

2.1

1.2

2.1

1.5

1.0

4.1%

Emerging and Developing Economies

5.7

4.4

3.0

4.2

3.3

2.5

52.2%

World Total

4.0

3.1

2.2

3.3

2.6

1.9

100.0%

*Europe includes all 27 current members of the European Union, as well as Iceland, Norway, and Switzerland.
**Other advanced includes Canada, Israel, Korea, Australia, Taiwan, Hong Kong, Singapore, and New Zealand.
***Southeast Europe includes Albania, Bosnia & Herzegovina, Croatia, Macedonia, Serbia & Montenegro, and Turkey.
Source: The Conference Board Global Economic Outlook 2013, May 2013 update

Indian Prime Minister Manmohan Singh said the country’s economic slowdown was cyclical and temporary and that pessimism was unwarranted.

Many economists say hurdles to growth stem from the government’s slow pace of policy reforms as well as the country’s crumbling infrastructure and layers of red-tape.

India’s economic troubles are reflected in its gaping fiscal deficit, persistently high inflation and pessimism among businesses and consumers. This has driven down investments and demand.

Uncertainty in developed markets hasn’t helped. India’s exports, which account for about a fifth of its gross domestic product, have slowed sharply over the past year. Meanwhile, the country’s import bill has swelled, leading to a record-high current account deficit at 6.7% of GDP in the October-December quarter.

Eurozone  is a signal that worst is yet to come ?

 

http://articles.timesofindia.indiatimes.com/2013-06-01/europe/39673930_1_unemployment-rate-youth-unemployment-unemployment-figures

Unemployment across the 17 European Union countries that use the euro hit another record high in April – and appears to be on course to hit 20 million this year in what would be another gloomy landmark for the currency bloc.

Eurostat, the EU’s statistics office, said on Friday that the unemployment rate rose to 12.2% in April from the previous record of 12.1% the month before. In 2008, before the worst of the financial crisis, it was around 7.5%.

A net 95,000 people joined the ranks of the unemployed, taking the total to 19.38 million. At that pace, unemployment in the currency bloc – which has a population of about 330 million – could breach the 20 million mark by the end of the year.

The unemployment figures mask big disparities among the euro countries. While over one in four people are unemployed in Greece and Spain, Germany’s rate is stable at a low 5.4%.

The differences are particularly stark when looking at the rates of youth unemployment. While Germany’s youth unemployment stands at a relatively benign 7.5%, well over half of people aged 16 to 25 in Greece and Spain are jobless. Italy’s unemployment rate hit its highest level in at least 36 years to over 40%.

“Youth joblessness at these levels risks permanently entrenched unemployment, lowering the rate of sustainable growth in the future,” said Tom Rogers, senior economic adviser at Ernst & Young.

By contrast the US economy has been growing steadily since the end of its recession in June 2009 and the jobs market has started to improve, with the unemployment rate falling to 7.5% in April.

The asset quality is declining in tandem with the economic cycle : http://www.livemint.com/Opinion/JdBQccPTowuvisdqj9guXN/The-deterioration-in-Indian-banks.html

The financial problems of Indian companies are now being reflected in the asset quality of banks that have lent them money.

The disappointing fourth quarter results announced by the State Bank of India in May are perhaps the starkest example of how the financial condition of Indian banks has deteriorated in tandem with the economic cycle. A recent report by India Ratings and Research, an arm of Fitch Ratings, predicts further deterioration—Rs.1.26 trillion of bank loans may potentially be in distress over the next 12 to 24 months, it says.

The Reserve Bank of India (RBI) has done well to begin making it tougher for banks to brush their problems under the carpet. The central bank on Thursday tightened the rules for corporate debt recasts, asking banks to set aside more money for restructured loans as well as making promoters of companies personally liable for loan losses. This follows an earlier decision in November to increase provisioning for restructured assets.

Non-performing loans have been climbing. The problem of restructured assets has also been increasing over recent quarters. The total value of restructured loans in bank books under the corporate debt restructuring facility was an estimated Rs.2.29 trillion in March. There are an additional Rs.1.7 trillion of loans that have been restructured on a bilateral basis between individual banks and their troubled borrowers, according to unofficial estimates.

Such restructured loans as well as the usual bad loans now weigh down bank balance sheets.

The recent moves to raise the cost of loan restructurings—or the withdrawal of regulatory forbearance—is an implicit signal from the central bank that problem loans will not disappear in a jiffy. It usually makes sense to give lenders breathing space to put their loan books in order when companies are hit by a temporary downturn. A few quarters of leniency can help companies get back to their loan repayment schedules quickly. But it is now increasingly clear that the Indian economy is in the midst of a long slowdown, so banks will need to be far tougher with problem loans.

The rise in problem loans should not come as a surprise. It is the inevitable aftermath of a credit boom, as is the case in other economies as well. Loan growth in India was around twice of nominal gross domestic product in the years that immediately preceded the 2008 crisis, a sure sign of effervescent lending. Part of this unusual buoyancy in lending can be explained by the decisions taken within banks but the pressure from New Delhi to step up lending in those exuberant years was also a factor. This is the moment of the inevitable hangover.

What now? A quick improvement seems unlikely. First, it seems that India has still not seen the bottom of the credit cycle. Second, the standard metrics on the ability of companies to service their debt (such as interest cover and free cash flow) are also flashing amber. Third, a sharp reduction in interest rates seems unlikely despite the unexpectedly sharp drop in inflation in recent months. Our assessment is that asset quality in Indian banks will continue to deteriorate for at least a few more quarters (though rising bond prices as a result of a fall in long-term yields could provide some buffer to banks that collectively own more than a quarter of their assets in bonds).

The asset quality of banks is closely related to the state of the underlying economy, which is now in the midst of a structural slowdown. The recent regulatory tightening should be examined against this backdrop, as a recognition of the true state of the Indian economy.

Investors too should welcome the stricter measures, because the regulatory forbearance we saw after 2009 was an attempt to postpone the day of reckoning, when a bank has to take a hit from its problem loans.

FDI inflows declining and rupee depreciating

http://www.thehindu.com/business/Economy/fdi-dips-by-38-to-224-bn-in-201213/article4775276.ece

Government’s efforts to promote India as an investment destination does not seem to be yielding fruits as FDI inflows registered 38 per cent decline to $22.42 billion in 2012-13 compared to the previous year.

FDI inflows were worth $35.12 billion in 2011-12.

The government had taken several policy decisions in the past few months to attract foreign investments. Important among these include allowing FDI in multi-brand retail and civil aviation sectors and seeking legislative approval for increasing FDI cap in insurance and pension sectors.

In March this year, the country had attracted $1.52 billion FDI, taking the total to $22.42 billion in the entire financial year, an official in the Department of Industrial Policy and Promotion (DIPP) told PTI.

Sectors which received large FDI inflows during 2012—13 include services ($4.83 billion), hotel and tourism ($3.25 billion), metallurgical ($1.46 billion), construction ($1.33 billion), automobiles ($1.53 billion) and Pharmaceuticals ($1.12 billion), the official added.

India received maximum FDI from Mauritius ($9.49 billion), followed by UK ($7.87 billion), Singapore ($5.25 billion), Japan ($2.97 billion) and United States ($1.11 billion).

According to industry experts, there is a need to improve business environment in the country.

In November 2012, India attracted FDI worth $1.05 billion, which was two—year low.

India would require around $1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth.

Decline in foreign investments could put pressure on the country’s balance of payments and may also impact the value of the rupee.

Rupee declined by 12 paise to end at 11—month low of 56.50 against the US dollar on Friday amid worries over current account deficit and GDP growth.

With FII outflows of $90 million in stocks, RBI’s poor inflation outlook and GDP growth rate falling to decade’s low of 5 per cent pushed the rupee downwards to 56.76 — its lowest since June 28, 2012.

Economic growth rate slipped to a decade low of 5 per cent in 2012—13 due to poor performance of farm, manufacturing and mining sectors.

GDP growth in Jan- March is a mere statistical growth due to base affect ?

http://www.livemint.com/Opinion/DuHmUO6Inoyspt254OeGWJ/GDP-growth-improves-a-tiny-bit-aided-by-smoke-and-mirrors.html

Has the economy turned the corner? That’s the big question the gross domestic product (GDP) numbers were supposed to answer. Has it indeed bounced off a bottom? At first glance, the answer to that question seems to entirely depend on your measuring rod. For instance, if we take the quarterly estimates of GDP at 2004-05 market prices from the expenditure side, we find real GDP growth was 3.4% in the June quarter, 2.5% in the September quarter, 4.1% in the December quarter, and 3% in the March quarter. By that yardstick, the economy hit a bottom in the September quarter of 2012-13, bounced back in the next, and then fell back again in the March quarter. The rather dubious consolation is that this yardstick is well known to be dodgy and the credibility of the expenditure-side GDP figures is rather low.

Going back to the more credible GDP data at factor cost, we find growth was 4.8% in the March quarter, a mite higher than the nadir of 4.7% reached in the preceding quarter. That would indicate that the economy has indeed bounced off a bottom, a very weak bounce, more of a twitch really.

The problem, as usual, lies in the base effect. It’s true that real GDP growth at factor cost was 4.7% in the third quarter and 4.8% in the fourth quarter compared with a year ago. That 4.7% growth was on top of 6% growth in the third quarter of 2011-12, while the 4.8% growth was on top of a much-lower 5.1% growth in the fourth quarter of 2011-12. Even the feeble bounce was entirely statistical.

The same holds true for several of the sectors. Growth in manufacturing, for example, has moved up slowly and steadily from minus 1% in the first quarter of 2012-13 to 2.6% in the fourth quarter. That looks like a decent recovery. The problem is that in the first quarter of 2011-12, manufacturing growth was 7.4% and it was a mere 0.1% in the fourth quarter of that year. In short, the entire credit for the growth in manufacturing goes to the base effect.

Apart from agriculture, with its seasonal vagaries, are there any sectors that have bucked the base effect? The financing, insurance, real estate and business services segment seems to have done just that. It grew by 9.1% in Q4, 2012-13, on top of 11.3% growth in the year ago quarter. Compare that to its much-lower 7.8% growth in Q3, 2012-13, on top of 11.4% growth in the year ago quarter.

On the other hand, there are several sectors that have done badly in spite of a favourable base effect. Consider electricity, gas and water supply, whose growth rate has gone down from 4.5% in the third quarter of 2012-13 to 2.8% in the fourth, although growth in this sector in Q4 of the previous year was much lower than in Q3 that year. This clearly shows the impact of supply-side problems in the power sector. Similarly, growth in trade, hotels, transport and communication slackened a bit in the fourth quarter compared with the third, despite a favourable base effect. Community, social and personal services, a proxy for government expenditure, unsurprisingly saw tepid growth as the fiscal deficit came down.

How much did the different sectors of the economy contribute to GDP growth in 2012-13? As much as 35% of the growth was generated by the trade, hotels, transport and communication sector, closely followed by financing, insurance, real estate and business services, which accounted for 31.3%. The community, social and personal services segment contributed 16.8% of the growth. It means these three service sectors contributed a huge 83.1% to growth last fiscal year.

Contrast the miserable performance of manufacturing, which accounted for a mere 3.3% of growth. The construction sector contributed more than double that. As a matter of fact, agriculture, forestry and fishing generated 5.4% of last year’s growth, more than the share of manufacturing. The contribution of the mining sector was negative, because of the court-directed closure of mines. The chart shows the contribution from the different sectors. Clearly, mining is the weakest link, closely followed by manufacturing.

The Central Statistical Organisation also seems to have been bang on target with its estimate of 5% real GDP growth at factor cost for 2012-13. A closer examination shows, however, that it had overestimated growth in manufacturing, mining, electricity, gas and water supply and, to a minor extent, in community, social and personal services, and underestimated growth in trade, hotels, transport and communication. That the overall growth rate came out exactly as it predicted can be attributed to an extraordinary stroke of luck.

 

India’s growth slows down – India is running out of fuel ?

http://timesofindia.indiatimes.com/business/india-business/Its-official-Indian-economy-slowed-to-a-10-year-low-of-5-in-2012-13/articleshow/20374920.cms

The Indian economy grew at its slowest pace in a decade in 2012-13, posing another fresh challenge for the UPA coalition to revive growth and boost sentiment ahead of the general elections next year.

Data released by the Central Statistical Organization (CSO) on Friday showed that the economy grew 5% in 2012-13, compared to 6.2% expansion in the previous year. It was in line with the advanced estimates released earlier.

The economy grew 4.8% in the January-March period, the fourth quarter of the 2012-13 fiscal year, marginally above the upwardly revised 4.7% expansion in the previous quarter, providing some hope of a tentative turnaround. But the overall economic scenario still remains challenging and the GDP data should come as a wake-up call for the government.

The CSO numbers are also an embarrassment for the finance ministry which had questioned the statistics office’s methodology and expressed doubts about the advanced estimates.

The finance ministry had slammed the CSO for forecasting 5% growth for 2012-13. Finance minister P Chidambaram had said the estimate of 5% was based on “dated data”. He had said that growth would be closer to 5.5% and had exuded confidence that green shoots of recovery were visible in the economy.

The high current account deficit, which widened to 6.7% in the December quarter, and stubborn inflation has acted as obstacles to easing monetary policy aggressively. While the Reserve Bank of India has cut interest rates it has cautioned about the persisting inflationary pressures and risks still facing the economy.

What has been most disappointing is that industrial output growth in 2012-13 has been a mere 1%, posing a threat to job creation and overall growth.

Friday’s data showed the farm sector rose 1.9% in 2012-13 compared to 3.6% in the year-ago period while the crucial manufacturing sector grew 1% compared with 2.7% expansion in 2011-12.

The services sector, which accounts for nearly 60% of the economy, rose 7.1% in 2012-13 compared to 8.2% growth in the year-ago period.

 

CDR gives an indication that the corporate sector is crashing !

http://www.livemint.com/Industry/h7u6wQngeSZ6jL8MfCBpGL/Restructured-loans-cross-227-trillion-pace-slows.html

The latest data from the CDR cell suggests that Indian banks added Rs. 15,016 crore of restructured loans in the March quarter, about Rs. 9,000 crore less than what they had done in the pre ceding quarter. On a cumulative basis, total restructured loans crossed Rs. 2.27 trillion, or 4.4% of the total loans given by Indian banks.

Indian banks have been hit by a surge of bad loans in the face of declining economic growth, estimated at a decade’s low of 5% in the year ended 31 March, project delays and high interest rates that have made it difficult for borrowers to repay debt. Lenders have been easing repayment terms to avoid classifying them as bad assets.

The CDR numbers do not reflect the actual pile-up of restructured loans in the banking system because lenders also recast loans outside the CDR platform, on a bilateral basis.

The aggregate figure for bilateral loan recasts is not available, but bankers said such recasts may nearly equal the CDR figure. That would take the total restructured assets of the Indian banking industry to around Rs.4 trillion.

In the whole of fiscal 2012-13, Indian banks restructured a total of Rs.77,101 crore of loans through the CDR route, nearly double the amount in the previous fiscal (Rs.40,000 crore). Analysts expect about 25-30% of such loans to turn bad.

Iron and steel contributed most to the restructured loan pile—23%—followed by infrastructure (9.65%) and power (8.13%). The textile, telecom and fertilizer sectors, and non-banking finance companies, too, are high on the list.

Despite a decline in the CDR numbers in the March quarter, bankers and financial sector analysts are sceptical about a sustainable revival at Indian companies. The pain associated with mounting bad loans is unlikely to ease at least in the next six months, they said.

Gross non-performing assets (NPAs) of 40 listed Indian banks rose to Rs.1.79 trillion in December fromRs.1.25 trillion a year ago, an increase of 43.1%. In the past, the Reserve Bank of India (RBI) had cautioned banks about the need for enhanced risk assessment tools to monitor loan quality.

Factory output shrinks 1st time in over 4 years .

http://in.reuters.com/article/2013/06/03/india-manufacturing-pmi-idINDEE95203N20130603

The sombre PMI findings came hard on the heels of data released on Friday that confirmed Asia’s third largest economy grew at its slowest pace in a decade in the fiscal year that ended in March.

The overall HSBC Manufacturing Purchasing Managers’ Index (PMI), which gauges business activity in Indian factories but not its utilities, sank to 50.1 in May from 51.0 in April, and was the third straight monthly fall.

Though the May reading was the lowest since March 2009, the overall index has held above the watershed 50 level that divides growth from contraction for over four years.

The reading for the factory production sub-index, however, showed output contracted in May from a month earlier as new orders growth slowed to a trickle. The output sub-index fell to 48.6 in May from 50.2 in April.

“Economic activity in the manufacturing sector slowed further in May as output contracted in response to softer domestic orders,” said Leif Eskesen, an economist with survey sponsor HSBC. Eskesen said power outages added to the drop in production

Defaults in Agricultural credit in another bubble ?

http://www.livemint.com/Industry/ph30HumD1FPAGaBj0XCOyH/Kisan-Credit-Cards-Bad-loan-bubble-waiting-to-burst.html

A surge in exposure to farm debt through Kisan Credit Cards (KCCs) could emerge as a risk for India’s state-run banks, according to experts.

Subsidized loans are given to farmers through KCCs by state-owned banks. Until March 2012, the outstanding amount on such loans was Rs.1.6 trillion through 20.3 million cards, as per the latest Reserve Bank of India (RBI) data. This may have risen to around Rs.2 trillion, bankers said.

Bad loans may be piling up at banks, but they don’t reflect on the books as the credit limit on such cards keeps increasing. Even if a borrower fails to pay up and the banks add the unrealized interest to the exposure because of the rising credit limits—typically 10% every year—the so-called capitalization of interest does not affect the status of the loan account.

State Bank of India (SBI) has the largest exposure to KCC loans—about Rs.44,000 crore— and 5% of this has turned bad, the bank said; Central Bank of India’s exposure isRs.8,428.05 crore and that of Bank of Maharashtra is Rs.2,045 crore.

According to RBI data, banks had Rs.33,200 crore overdue in the direct agrifinance portfolio till 2011 June. The latest figures are not available.

The credit culture in rural India deteriorated sharply after the government announced a Rs.70,000 crore debt waiver for farmers in the February 2008 budget.

The farm loan waiver was one of the United Progressive Alliance government’s key programmes in its first tenure and at least partly responsible for its return to power in 2009.

“Outstanding KCC loans have grown at around 33% in past two years while the number of credit cards has grown at around 13%,”

The share of agriculture, which once generated maximum jobs, has been shrinking as a percentage of national income in Asia’s third largest economy—from 35.75% in 1981 to 16.75% in 2012.

Agriculture is one of the largest sources of bad loans for most banks. It is contributing 9.72% to the gross NPAs of SBI and 7% of Central Bank of India. The nation’s largest lender SBI has the largest gross NPAs —Rs.53,457.79 crore, or 5.3% of loans, followed by Punjab National Bank (Rs.13,997.82 crore, or 4.61% of loans), Central Bank of India (Rs.8,938.47 crore, or 5.64% of loans) and UCO Bank (Rs.6,711.29 crore, or 5.53% of loans).

A bad monsoon could mean a dramatic turn for the worse as the June-September rainy season constitutes India’s main source of irrigation.

Brief summary :

  1. The financial problems of Indian companies are now being reflected in the asset quality of banks that have lent them money.

And the NPA’s are growing every hour.

  1. Government’s efforts to promote India as an investment destination does not seem to be yielding fruits as FDI inflows registered 38 per cent decline to $22.42 billion in 2012-13 compared to the previous year.
  1. The Indian economy grew at its slowest pace in a decade in 2012-13
  1. Industrial output growth in 2012-13 has been a mere 1%, posing a threat to job creation and overall growth.
  2. Factory output shrinks for the 1st time in over four years
  3. Farm sector rose 1.9% in 2012-13 compared to 3.6% in the year-ago period while the crucial manufacturing sector grew 1% compared with 2.7% expansion in 2011-12
  4. The services sector, which accounts for nearly 60% of the economy, rose 7.1% in 2012-13 compared to 8.2% growth in the year-ago period.
  5. The share of agriculture, which once generated maximum jobs, has been shrinking as a percentage of national income in Asia’s third largest economy—from 35.75% in 1981 to 16.75% in 2012.
  6. Until March 2012, the outstanding amount on Kisan Credit card loans was Rs.1.6 trillion through 20.3 million cards, as per the latest Reserve Bank of India (RBI) data. This may have risen to around Rs.2 trillion
  7. “Outstanding KCC loans have grown at around 33% in past two years while the number of credit cards has grown at around 13%,”

10. Gross non-performing assets (NPAs) of 40 listed Indian banks rose to Rs.1.79 trillion in December fromRs.1.25 trillion a year ago, an increase of 43.1%.

11. The total restructured assets of the Indian banking industry could be around Rs.4 trillion.

12. All the emerging or the sunrise industries are not earning enough to pay loans and this clearly shows that India is a oversold story . Iron and steel contributed most to the restructured loan pile—23%—followed by infrastructure (9.65%) and power (8.13%). The textile, telecom and fertilizer sectors, and non-banking finance companies, too, are high on the list.

13. Eurozone is passing through a crises that could worsen, and impact the Indian exporters

14. Rupee is depreciating, and is the worst performing currency in Asia

Overall, I stand by my assessment of the Indian economy in March 2012 (http://commonmansblog.com/2012/03/22/have-we-oversold-the-india-story/ ) and in October 2012 (http://commonmansblog.com/2012/10/11/india-from-emerging-to-a-submerging-economy/ )that India is an oversold story and should prepare for the worst times ahead . Also, I said on my blog in March about India facing a security threat , and we know what China did (http://commonmansblog.com/2013/03/03/economy-downgrade-and-downfall-both-are-a-foregone-conclusion/) .

I see no reason to believe that India will be back to normal before 2015-16, and that too, provided politicians become realistic . In the current environment , none of the political parties or the politicians have a plan to salvage the situation, and my prediction is , that  India’s growth rate might fall below 4 % .  The Indian Titanic is in mid of a turbulent sea, heading towards a more severe storm . The Titanic is sinking . Can we do something ?

Rajendra Pratap Gupta

http://www.commonmansblog.com