The distributed growth model . A keynote delivered on the invite of the World Bank in Algeria in June 2018
Category: Growth Numbers
India needs a “Distributed Growth Model” – Growth Alone will not suffice
“Distributed Growth model” is the need of the hour. Growth alone will not suffice.
India’s budget preparation is in the final leg and it will be unveiled soon. Last two budgets have put the focus correctly; by giving thrust to rural development, agriculture and infrastructure, but the bureaucratic red-tape has been an impediment. We have a long way to go and we need to evolve a new model – the ‘Distributed growth model’. All these decades, we have chased the ever-elusive “double digit” growth, but we are not going to achieve that with the current approach.
“Too many economists spoil the budget”. We had a world-class economist running the country for a decade, we had the best economists running the RBI and the erstwhile Planning Commission, and we still could not achieve double digit growth, and floundered. So, it’s time to have a fresh look at our economic approach. A mere change in the interest rates have not done anything, and will not. Economy is not about tax collections, interest rates or money supply alone, it is much more. ‘Text book economists’ do not understand the country’s complexities, and neither they do good to the economy, or to economics. Also, the general perception is, that only 3 % pay taxes. Yes, 3 percent may be paying direct taxes but every citizen of India pays taxes indirectly when s/he purchases a product from the market. With GST implemented, all the more! So, to use this reason of low tax payer’s base is wrongfully placed.
It is time we considered a model that leads to growth which percolates downwards and spreads wide, that what I call as, ‘Distributed Growth model”. How do we make it happen?
Let’s look at the following data;
- More money in the hands of the poor : There are about 250 million households in India and of these, about 25 % are BPL. So, we need to continue and enhance their earnings with “Mission 62.5 million households”.
- Agriculture : The number of cultivators and agricultural labourers added together make up around 263 million or 22% of the population (@1.2 Bn population based on 2011 census). Investment in ‘Irrigation’, in agri-allied sectors, and in setting up forward linkages with markets in towns, and for exports is the need. Special ‘Agri-infra & Irrigation mission’ project is needed to fire the most important engine of our growth – Agriculture.
- MSME : As per the annual report of the MSME Ministry (2015-16), MSME sector employs about 80 million people in about 36.1 million units. Out of these, units in rural areas are 20 million and number of women enterprises are 2.6 million. MSME needs to expand more to semi-urban and rural areas and engage youth and women entrepreneurs, and also boost MSMEs expansion in food processing, agriculture based and allied segments, high-end tooling, IOT and niche manufacturing. MSME is where massive employment and income gets generated. It will not only ensure success of ‘Make in India’, but most importantly, as the MSME employees themselves are the customers of “Make in India’, it will create ‘customers’ for such products. With such customers available, ‘Make in India’ will be a grand success. MSME is the second engine of the economy that needs to be fired up
- Six states (Bihar, Uttar Pradesh, Rajasthan, Madhya Pradesh, Jharkhand and Chhattisgarh) have 42 percent of population and 56 % of the total population growth. Luckily, all these are under BJP. We need to invest more in uplifting the economy of these states. Lower growth in these states can drag down the overall growth of the country.
- Retailers number 13 million and we need to carefully tread FDI in online and retail segments. 100 % Investment in Retail for daily use products might be myopic, and the policy makers need to be careful if BJP wants to run this country for another 25 years! Also, we need to create innovative models to explore, to seek investments in retail and grow the standalone stores at the same time
- Tourism: India has about 10 million tourist arrivals and this can become 5 times. Imagine the number of hotels & convention centres, cabs, guides etc. that will come up and the best part, without any Government investment, as the private sector will invest seeing the business potential. Government must focus on tourism as a job creator and a foreign exchange earner. India has so much to offer to global and domestic tourists! Focus on ASEAN and expand beyond .
Health & Education
Recent study had revealed that 50 million go below poverty line due to healthcare costs. Also, it is a known fact that most of the ‘educated’ are not ‘skilled enough’ to do the jobs that the country needs as its economy evolves. Hence, education and health needs investment. If the workforce is not healthy and competent, how can the economy be strong? In fact, anecdotally (since I am not an economist by training), I would take the liberty of stating that GDP growth would be equal to the GDP spends on education, and health! Our healthcare system and education system is in shambles and it needs massive investment. For achieving ‘distributed growth model’, investment in health and education are a precondition.
Strongest thing about India’s economy is ‘1.34 billion consumers’, who run the consumption story (growth engine) for the country, and we add about 18 million new consumers every year. With more opportunities for consumers from Agriculture, MSME and Tourism; and assuring them with quality health and education; we will fire the economy to grow 10 percent a year, and that too, sustainably.
I see foreign trained economist keep warning India about the Fiscal discipline. If the investments are going in areas outlined above and not in opex, we must not worry. Even if the fiscal deficit reaches 5 percent, investments in these sectors will payback, and our economy will be amongst the 3rd largest in a decade. USA is a case in point. It is too big an economy and though its fiscal arithmetic is baffling, does it worry about its ratings or deficit!!?
In oil rich Gulf countries, GDP and GDP per capita appears fantastic as statistics, but since the oil fields are in the hands of a few royal families, the wealth gets concentrated in a few hands. Recently, the annual Oxfam survey has found that the wealthiest 1 % Indians garnered 73 % of the wealth created in 2017. This is due to the ‘Concentrated Growth model’. So growth alone with not suffice , and we need ‘distributed growth’. In the “Distributed Growth” model lies the answer. India should move to this model before the gap between ‘have’s’ and ‘have nots’ increases more!
What the policy makers must aim is on enhancing the income and money in the hands of consumers by creating more avenues to work, earn and spend. This will happen if we invest in agriculture and value addition in allied agro based industries, MSME, tourism, infra, health & education.
Lastly, let us not forget, electorate will evaluate Modi government’s performance on health, education, employment, electricity and inflation. These hold the key to a massive win in 2019.
Good economics is long term politics!
Rajendra Pratap Gupta is a leading public policy expert. Views are personal
Packaging sells and also kills !
We heard the famous marketing quote that , ‘ packaging sells’, but the story for most of the India’s middle class, who eat on roadside eateries is somewhat different , and the new message is ‘packaging kills’ , and more so, when food gets garnished with lead and other hazardous chemicals !
India is a foodie nation, and with the rising middle class, our eating habits are changing. There is an increasing tendency to eat food outside, and India, predominantly being a middle class nation, our preference is for road side eateries and small or mid size restaurants. But what goes unnoticed is; the newspapers used in packing food items, or the printed material on tea bags, and the potential dangers associated with them.
It is a fact, that the newspapers are printed with ink that is dissolved on it with the help of chemical solvents. Studies have shown that printing ink from newspapers can easily gets into foods wrapped or served in them and this is dangerous for health. The solvents used in ink are potentially carcinogenic.
Also, newspapers and cardboard boxes used for packaged foods are made of recycled paper, which may be contaminated with harmful chemicals like di-isobutyl phthalate and di-n-butyl phthalate that can cause digestive problems and also lead to severe toxicity.
It is a fact that the recycled paper used has printing ink residues. These un-cleaned residues have found to contain hormone disruptors like benzophenones and mineral oils which can interfere with reproductive cycle of women.
Through the print based packaging, there is an exposure to organic chemicals called aryl amines, such as benzidine, Naphthylamine and 4-Aminobiphenyl, which are associated with high risks of bladder and lung cancer. Apart from these, printing inks also contain colorants, pigments, binders, additives and photo-initiators, which have harmful effects.
It is also believed, that the mineral oil-based printing inks for newspapers contain mineral oils, which consists of various types of hydrocarbon molecules that can exist as Mineral Oil Saturated Hydrocarbons (MOSH) and Mineral Oil Aromatic Hydrocarbons (MOAH). These hydrocarbons usually convert into gases by evaporation that eventually penetrates food items.
Newspapers are usually produced by a system called offset-web printing, which requires a certain consistency of the ink (it needs to be very thick) and a particular means of drying. For the former, mineral oils (petroleum-based) and solvents such as methanol, benzene and toluene are used; and for the latter, heavy metal (Cobalt)-based drying agents are used. None of these should be used in food packaging, as they are also classified as harmful and can be dangerous for health if consumed.
According to the FAO / WHO, Joint Expert Committee on Food Additives, the safe upper limit for the MOSH in foodstuffs is 0.6mg/kg. Older people, teenagers, children and people with compromised vital organs and immune system are at a greater risk of acquiring cancer-related health complications.
Another problem lies in the plastic bags used in takeaways. These bags are made of polyethylene (polythene) and the principal potential ‘migrant’ agent is ethylene. There are a number of potential additives to polythene, such as anti-static agents, ultra-violet protection and flame-retardants. These additives can be very dangerous if they find way into the takeaway food, which usually happens.
According to an article in the British Medical Journal, ‘Food packaging and migration of food contact materials: will epidemiologists rise to the neotoxic challenge? J. Epidemiol’ by Muncke J, et al. (Feb 2014), scientists say that most food contact materials (FCMs) are not inert. Chemicals contained in the FCM, such as monomers, additives, processing aids or reaction by-products, can diffuse into foods and this chemical diffusion is accelerated by warm temperature, and in India, the temperatures can touch as high as 45 degrees Celsius.
The scientists believe that FCMs are a significant source of chemical food contamination. As a result, humans consuming packaged or processed foods are chronically exposed to synthetic chemicals throughout their lives.
Formaldehyde, another known carcinogen, is widely present at low levels in plastic bottles made of polyethylene terephthalate. Other chemicals known to disrupt hormone production and used in food and drink packaging include; Bisphenol A, tributyltin, triclosan and phthalates.
There is an increase in the use of tea bags, and while using teabags, sometimes people squeeze the teabag using the label at the end of the loop. This can leak the ink from the label. I would recommend that the guidelines be framed and implemented to warn people of the same and prevent this practice
I also suggest that based on the facts available, it might be worthwhile banning the use of plastics, recycled materials and newspapers for food packing.
The FSSAI must act immediately and frame guidelines to control wrapping of fried foods in newspapers, banning the use of plastic bags for takeaways, and other practices that are harmful.
Further, it must mandate the use of ‘food packaging grade’ butter paper or aluminum foil for packaging food. We need to act on this without losing any further time
DISCLAIMER: The views expressed are solely of the author and ETHealthworld.com do not necessarily subscribe to it. ETHealthworld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.
One chance to change our fate and of our Nation – Vote for India , vote for BJP
Please read this before you think about whom to vote for ? We cannot afford to experiment with new parties or give another chance to a privately owned political party… We need a party with a proven track record of delivering results , and that is BJP ….
State of the Nation: – A Decade of Decay
Decade under the UPA I & II can rightly be summed in one line, the ‘Decade of Decay’, in which India had a free fall on all fronts – be it economic failure, diplomatic humiliation, failure of foreign policy, intrusions across borders, corruption & scams or crimes against women. There has been gross misuse & total denigration of government & constitutional institutions and this has eroded the office of the Prime Minister. The Government dithered by each passing day, casting gloom and doom on the country that was once under the NDA regime called the ‘Emerging Super Power’. In 2004, NDA left the Government with 8.1 % growth. The UPA could not even maintain that growth and mismanaged the country so badly, that the growth rate declined to 4.8 %, with the nation in a deep mess. We have lost a wonderful opportunity and have pushed the nation 20 years behind and rendered millions jobless and hopeless.
Economy mismanaged
CAD now exceeds even 1990-91 Level – India is revisiting the crisis of 1991.
Between 2001-02 and 2003-04, the nation had a pleasant experience on balance of payments, turning surplus for continuously three years, which was unprecedented after the post-independence period. All the gains of the NDA period have been frittered away in saving the dynasty rule through various election-financing schemes
Debt Trap – A result of Wrong policies
Total public debt on India is Rs 4,606,350 crore, and the debt per capita stands at about Rs 38,000
Rising NPAs – things are going from bad to worse
Economy is slowing down and the banks are under strain. Defaults have led to NPAs almost doubling from the 2009 levels. Rs. 2.43 lac Crore of estimated NPAs are in 40 listed banks as on December 2013. Rs.4.0 Lac crore is the amount of restructured loan under the CDR scheme.
Rupee Downfall
The Indian rupee, which was at par with the American currency at the time of Independence in 1947, has touched its historic record low of below 68.80 against the dollar under the UPA
Jobs – Shrinking job market
The employment generation actually decreased sharply between 2004-05 and 2009-10, especially when compared to the earlier five-year period.
In the five years from 1999-2000 – 2004-05, NDA created 60.7 million new jobs against the 2.76 million new jobs between the years 2004-05 to 2009-10 under the UPA. Now, India is going to lose more jobs in the coming years due to the wrong policies of the UPA
Poverty & illiteracy is the result of Congress misrule
416 million poor, 316 million illiterate & more than 600 million population without toilets sums up the outcome of the economic policies followed by Congress
India continues to be one of the hungriest nations in the world & accounts for 42 per cent of the world’s underweight children.
India’s Human Development Index rank has a negative trend for the time period 2007-12, which indicates deterioration in the indicators determining the Human Development Index.
Inflation: Price rise during the UPA years – Contrary to the Global Phenomenon
Whenever it came to low rate of growth, UPA justified that it was due to global economic situation, but the same cannot be justified for the increasing food prices in India. In November 2013, the Food Prices Index fell by 4.4 % globally, while in India, the Wholesale Price Index (WPI) was estimated to be close to 20 % in November 2013.
On one side, we have European Union’s inflation rate declining to a four-year low, and on the other side, UPA is groping in the dark for the past decade to find a solution for inflation and deficits. Country’s growth that reached near double-digit due to initiatives of the NDA government has come down to 4.5 %, that too remained because monsoons played a face saver and there was a high growth in agriculture ( 4 %). Year 2013 had an unusually good monsoon favoring a good agricultural yield, but had the monsoons been average, the growth would have been below 3 %. It was the agriculture & not the Government Policies that saved the nation from a collapse!
The State of the Education Sector in India declining
Health and education are defining sectors for equitable human development and sustainable and inclusive economic growth of India.
Despite levying a tax to fund education and enacting a law to ensure access to education for all children between the ages of 6 and 14, the government hasn’t succeeded in improving the learning outcomes in India’s schools, because the UPA thoroughly bungled the Sarva Shiksha Abhiyaan initiated by the NDA.The quality of learning has either shown no improvement or actually worsened in the nine years of the UPA’s rule
Recognized as a critical element for India’s growth, the UPA government had claimed way back in its first term, that 6% of the GDP would be spent on education, which is a bare minimum for an emerging economy like ours. Nonetheless, the sector still stands at around 4% of the GDP today.
It is unfortunate, but the UPA government and the Ministry of Human Resource Development have surely missed the focus on Education and Employment, and the Research & Development expenditure has stagnated under the UPA.
Health care – India’s ticking time bomb
Healthcare is still inaccessible and unaffordable to the masses. Out of pocket spending is still high at 78 %. Goals set forth under NRHM have not been achieved and the scheme has floundered. UPA has failed to deliver health, or healthcare, despite a huge spending.
Agriculture Sector – Farmers and Farming Neglected
Due to lack of investment (both public & private) in agriculture, the share of agriculture in GDP has dropped to less than 15%. UPA has failed to increase investment, productivity & profitability of agriculture, leading to farmer suicides, migration from agriculture and widening the urban-rural divide. The Nation is left at the mercy of rain Gods!
India’s Foreign Policy – Alien to India’s strategic interests!
The past decade has witnessed, a directionless Indian Foreign Policy under the UPA I & II; of alienation and antagonism in relations with South Asian neighbours, & of international humiliation. India has been miserably failing in accomplishing its national interest due to poor diplomacy
Global Competitiveness
India has slipped to 60th position in terms of its competitiveness globally. This is India’s lowest ever rank and also 31 place below its peer emerging market -China. With regards to GCI, India is placed at 60th position out of 148 economies
India is ranked 134th position out of 189 countries in terms of ease of doing business
Transparency International’s Corruption Perception Index in 2012 ranked India at 94, out of 176 nations
In the global happiness-ranking list, India stands at rank 111-much after Pakistan (rank: 81) and Bangladesh (108).
Downgrade to downfall !
International rating agencies have been warning that India’s Baa3 rating is in danger of a downgrade, which has vitiated the investment climate. Any further downgrade would club the economy with junk-grade countries.
The fiscal profligacy of the UPA government has put India into a tight corner when it comes to repayment of borrowings. Government bonds worth Rs 1567 billion (Rs 1,56,700 crore) is coming up for redemption in fiscal year 2014-15 & In the fiscal years 2015-16, 2016-17, 2017-18 and 2018-19, government bonds worth Rs 114600 crore, Rs 231200 crore, Rs 256700 crore and Rs 242400 crore are coming up for redemption, respectively.
Where is India headed ?
Erosion of moral and societal values and governance
Crimes & corruption are on the rise across the nation and scams have impacted all the sectors like Panchayat, Housing, Education, Health, Agriculture, Mining, telecom etc. No one is untouched from corruption in the UPA regime
Corruption has become a part of the daily life. There is hardly any day when we do not come across the cases of flourishing corrupt practices getting exposed in one form or another. The policies of UPA have resulted in fast degradation of moral, societal,and cultural values
Use your right to vote to seek a change for a better India
Rajendra Pratap Gupta
Strong fundamentals of Indian Economy
Please see the total debt , interest and principal payments by the Government of India . Still do you think that we can pull this country out of the mess under the UPA ? We need radical changes
As per data made available by the Ministry of Finance on debt vide RTI dated 13th May 2013 letter dated AAAD/COORD/ L(1)2012; AS ON 31/12/2012
Government Loans :
Total multilateral debt is INR 2,401,829,740,367
Total bilateral debt is INR 1,046,418,091,740
Total Government loans ( multi-lateral and bilateral ) is INR 3,448,247,832,107
Non – Government loans
Multi-lateral INR 302,495,682,321
Bilateral INR 190,240,677,456
Total Non-governmental Multilateral & Bilateral loans – INR 492,736,359, 778
Grand total ( Government & Non-Government ) 3,940,984,191,885
Total yearly payments of interests & principal
2011-12 2012-13 ( 01.04.12 – 31.12.2012) Figures in 1000 INR
Interest 2425686378 2028398390
Principal 34823428250 24641868095
Can you guess the state of India’s economy for 2014 -16 ? Not tough
On 4th June , 2013 , I analysed the data and concluded that the Indian economy would grow below 4 % when most of our economists were speaking of returning to 6-7 % growth in the second half 2013 . https://commonmansblog.com/2013/06/04/the-titanic-is-sinking-can-we-do-something/
Leading global organizations like IMF / OECD have given similar predictions about Indian economy after 4-5 months of my analysis about the Indian economy
The recent reports of IMF on October 9, 2013 cut the India’s growth to 3.8 % in 2013 http://articles.economictimes.indiatimes.com/2013-10-09/news/42864491_1_world-economic-outlook-growth-forecast-global-growth
Also , OECD stated on 19th November, 2013 that India would grow at 3.4 % http://www.bloomberg.com/news/2013-11-19/oecd-cuts-global-growth-forecasts-on-emerging-market-slowdown.html
On one side , we have European Union’s inflation rate declining to a four-year low ( Mint , 16th November, 2013) and UPA is still groping in the dark to figure out how to handle inflation , deficits and govern this nation
To me , the fate of truck operators & tractors companies and not the sensex, is directly related to the fate of the common man & is the right indicator of the nation’s economic health. Trucks are the means for transporting goods and thereby, the correct parameter to judge the movement of economy. Truck operators are exiting truck business ( Mint, 26th November, 2013)., which is an indicator of the negative economic indicators
Sales of trucks dropped 29% in the first seven months of 2013, and truck sales have been declining for 20 months in a row according to SIAM and the existing truck operators are operating at 40 % of their capacity. Mint dated 26th Nov.
In my view, this mirrors with the growth slowdown of the economy that was once growing more than 8 % and is now growing around 4.5 % ….. High octane speeches of returning to double-digit growth are fine , but when our markets and rupee move with the news of US quantitative easing , it is good enough of the proof, that the intrinsic strength of this country’s economy is weak and of a lesser weightage than just the good news of foreign markets ( tens of thousands miles away ) or the US quantitative easing !
Small truck operators which constitute 75 % of the market are worst hit ( Mint , 26th Nov), and this must be good enough to sum up where have these Oxford, World Bank, IMF famed economists taken this country to ? May be, good rains can shower some temporary good news , but in the short-term and middle term , India has more tears to worry for than merry for this years good rains
No wonder, S&P downgraded IDBI bank debt to junk status . (Nov 26, 2013). More banks are under strain, but I believe that they would not declare NPAs before the next financial year to avoid disclosures that could add to their and the country’s woes !
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
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 ;
- Exports
- FDI
- 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
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.
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)
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.
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.
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.
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!
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?
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
(https://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.
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
Is it divestment or a buy back through a family controlled firm
On 8th February , 2013, i wrote about the ‘Oxytocin’ injections that the Government is giving to our economy to draw out milk…….here is the proof.
Life Insurance Corporation was the most dependable automated teller machine for the government in the past year, buying record amounts of bonds and stocks of public-sector firms. Which was shown as ‘successful divestment by the Government’.
The state-run insurer’s purchase of government bonds rose 20%, and it bought nearly 40% of the shares sold via offer for sale (OFS) in four out of total seven PSUissues, said people familiar with the investments.
Of the Rs 4.67 lakh crore raised by the government through securities, LIC provided over Rs 1.10 lakh crore, or 21.4% of the total figure.
LIC invested Rs 236 crore in Nalco (35% of the OFS size), Rs 142 crore in RCF (45%), Rs 608 crore in Hindustan CopperBSE 0.87 % (44%), Rs 923 crore in NTPCBSE -0.35 % (5%), Rs 1,069 crore in SAIL (71%) and Rs 282 crore in NMDCBSE 2.50 % (4.7%).
LIC had contributed 81% to the government’s Rs 14,000-crore mop-up from share sales in 2011-12 by investing Rs 11,400 crore in ONGC
LIC invests in government securities with a view to holding them till maturity, and mark-to-market losses in the interim are not good. It would be a good practice to evaluate returns on redemption each time it happens and compare it with benchmark government bond rates. “Any shortfall in the return should be compensated by the government,”
Also, LICs mandate to invest 50 % in Government securities should be re-looked .
So the big question is , was this really divestment or a ‘back door buyout’ & a ‘face saver’ from a state controlled financier with public money, which could have yielded better returns had the LIC invested into blue chip companies . We all know that the state run PSUs will perform poorly when compared to other blue chip firms . Does it not warrant a CAG inquiry into the management ( mismanagement ) of LICs investments under duress ( from Chidambaram ) ?
LIC is failing in its fiduciary responsibilities to its investors ( people of this country who buy insurance policies from LIC ) , who invest Rs. 450 crore a day in LIC . Time to raise this issue and realise , that the actual divestment figure shown by the Government was a back door forced buyback by a family firm ( Government’s family firm- LIC )
Rajendra Pratap Gupta
A Common Man's View Point (Blog) 