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 ;
- 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
Please see the data below . If you carefully examine the data , a few things are apparent ;
1. Sales drop in tractors indicate poor state of affairs in agri- rural India ( decline in agricultural sector )
2. Sales drop in Medium and heavy ( M&H) segment indicate actual decline in industrial output
3. Sales drop in light commercial vehicles (LCV ) indicate that the ‘Public sentiment’ is negative .
In the tractor segment 3,44,911 units were produced as against 3,72,282 units in the same period of last FY, registering 7% decline according to the data of Tractor Manufacturers Association [TMA].
As per the data of the Society of Indian Automobile Manufacturers [SIAM], total production in M& H segment was 2,11,530 vehicles against 2,72,400 in the same period of last financial year.
Source : http://www.business-standard.com/article/companies/steep-fall-in-commercial-vehicle-production-in-apr-dec-113012500139_1.html
VE Commercial Vehicle sales down 20% in December
By PTI Jan 01 2013 , New Delhi
India presses the ‘Panic Button’
India needs USD 80 Billion of foreign capital to fund its current account gap. Imagine, finance minister Chidambaram doing a road show in Hong Kong to woo investors! Anand Sharma twisting the rules to get IKEA money & pushing for getting dollar funds via FDI in retail, Pranab shunted to Rashtrapati Bhawan & the Vodafone tax amendment being redone..Do all these not appear as desperate measures? I wrote a few weeks ago, on how the ministries are making plans without money, and this is happening for the first time in history…
If the country has strong fundamentals, why should the finance minster be doing a road show in the first place! The panic does not end here, the budget cuts in important sectors like defense and other social sectors does signal that all is not well within India, and the panic button has already been pressed! We are nearing a ‘Fiscal slide’ & the consequent ‘hard landing’ will be steeper than the ‘fiscal cliff’ of the US. We are back to the 90’s. That time also, on the pressure of IMF, we had to ‘open’ the economy. Now the countries that ‘forced’ India to open the economy are also in the same boat ….So now the veiled threat of down grades.
This Government has not addressed the problems of India, as they have not diagnosed the problem rightly …….Our finance ‘doctors’ are just ‘suppressing the symptoms’ and not trying to ‘address the cause’, & So, the disease will never get cured. More pain in store for the Indian Economy
I hope we do not go the Kingfisher way………….
Rajendra Pratap Gupta
India – from Emerging to a Submerging economy
On 22nd March 2012 , I wrote this on my blog and also sent the same to leading public figures .I had stated dwelling in detail about how, ‘ Have we oversold the India story’, and this was much before the bad news starting sinking in !
Link to the blog is https://commonmansblog.com/2012/03/ .
This blog clearly mentioned that we must be prepared for bad news in April – May – June Quarter , and we know that, India was downgraded as an economy by the international rating agencies ( S&P & Fitch ) and many Indian banks also faced the brunt , many retailers are gasping for breath ….
This time , I have decided to write about the story of how Indian economy would enter a dark phase if immediate steps are not taken ,and this note is not against anyone but for everyone who wants to see India doing well ! I have tried my best to put data for every statement ( Besides Almighty , everyone should believe in data !).
So now , it is time to peep in the story of how an emerging economy can become a submerging economy .
Let us look at the following data :
|Sector – Industry / company||Financials ( Loans / NPAs)||Source / Remarks|
|Telecom Sector||Rs. 2.00 Lac Crore debt||TOI, 26th September , 2012.|
|Banking Sector||NPAs Rs.1.37 Lac crore as of June’12||Mint , 7th September, 2012|
|Banking Sector||According to RBI’s assessment , a fifth of all re-structured loans go bad . According to RBI, as on March 31, banks had Rs.2.18 Lac worth of restructured loans on its books||Mint, 7th September, 2012|
|Banking Sector||State-run banks NPA crosses Rs.1.23 Lac crore||Mint , 23/ August/ 2012|
|Credit card outstanding||Rs. 22150.00 Crore||As on July/ 21 Ref. ET 14/9/12|
|Indian Government||Total planned borrowing is Rs.5.71 Lac crore for FY 13, of which Rs.2.0 Lac crore would be in the second half of the fiscal by Dec’12||As per Mint dated September 28, 2012|
|Banking Sector||Report by Credit Suisse group AG points that exposure to 10 large Industrial groups constitute 13 % of the entire banking system||Mint, August 21, 2012.|
|Banking Sector||As of 27th July, Indian banks had loans outstanding of Rs.36,600.00 Crore to the mining and quarrying sector, and Rs.93,170.00 Crore to the Telecom sector||Mint, 12th September, 2012.|
|Power Sector||As of March, 2011, the accumulated losses of the State power distribution companies are estimated to be alone Rs.1.90 lac crore which, by now, would have crossed Rs.2.0 lac crore||IBN Live dated 23rd, September, 2012|
|Air India ( NACIL)||Rs.67520.00 crores in loans & dues||NDTV Profit, 8th Feb, 2012|
|Pantaloons ( Kishore Biyani’s )||Rs.3300.00 crore||ET, 14th June 2012 . After selling a portion of its apparel business to Aditya Birla Group. Before the sell-off , the debt of Pantaloon was about a billion dollars|
|Reliance ADA Group||Rs.86700.00 crore FY’12||Business Line August 26th, 2012.|
|GMR||Rs.33600.00 croreFY’12||Business Line August 26th, 2012.|
|JSW||Rs.40,200.00 crore FY’12||Business Line August 26th, 2012.|
|Jaypee||Rs.45,400.00 crore FY’12||Business Line August 26th, 2012.|
|Lanco||Rs.29,300.00 crore FY’12||Business Line August 26th, 2012.|
|Essar Group||Rs.93,800.00 crore FY’12||Business Line August 26th, 2012.|
|Vedanta||Rs.93,500.00 crore FY’12||Business Line August 26th, 2012.|
|Adani Group||Rs.69500.00 crore FY’12||Business Line August 26th, 2012.|
|Videocon||Rs.27,300.00 crore FY’12||Business Line August 26th, 2012.|
|GVK||Rs.21,000.00 crore F’12||Business Line August 26th, 2012.|
|Fortis Healthcare||Rs.6237.00 crore||Business Line August 15th, 2012|
|King Fisher Airlines||Rs.7500.00 crore||The Hindu, July 2nd , 2012|
|Losses of top three oil marketing companies||Rs.40,500.00 crore in April-May-June’2012||Forbes India , Sept 03, 2012|
|Airtel||Rs.60,018 Till Q1, 2012||Business Line , Aug 3, 2012|
The total debt level of ten companies alone (Adani, Essar, GMR, GVK, JSW, Jaypee Group, Lanco, Reliance ADA, Vedanta and Videocon) has jumped 5 times in the past five years to Rs 5,39,500 crore ( Indian Express , September 06, 2012 )
Business Line dated August 26, 2012: Credit Suisse said that the aggregate debt of the ten groups accounts for about 13 per cent of total bank loans and a whopping 98 per cent of the entire banking system net worth.
“Therefore, surprisingly now in terms of concentration risk, Indian banks rank higher than most of their Asian and BRIC counterparts,” it added.
The report said a strong loan growth of Indian banking system in past five years is increasingly being driven by a select few corporate groups.
“Given the high leverage, poor profitability and pressure from lenders, most of these debt heavy groups have initiated plans to divest some of their assets. However, given that most domestic infrastructure developers are already over-geared, demand for these assets may be limited,” Credit Suisse said.
Each of these groups alone account for 1-2 per cent of total banking system loans, the report said, while noting that all banks appear to have high exposure to the same few groups.
“With the economic slowdown and a downturn in these sectors, multiple assets of each group appear stressed and financials of these groups are stretched,” the report said.
Bank’s exposure to real estate sector ( ET dated 22nd August , 2012)
|Bank||Exposure to real estate FY 2011-12 ( Rs. Crore )|
|State Bank of India||144668.38|
|Punjab National Bank||48474.59|
|Bank of Baroda||22157.40|
|Total exposure||Rs. 437285.00 Crore|
Despite an exposure / investment of about Rs.4.37 lac crore from banks ,still five lac houses remain unsold ( ET, 22/ 08/2012 & TOI dated 18/ 09/ 2012. ) . So land became costly as the builders brought them with loans , houses became expensive due to builder cartels and now that houses are not getting sold , all are a part of the downturn ……..no solution is in sight except for NPA’s and its cascading affect later .
Clearly, Indian economic story lacks ‘depth’ but has been built on ‘debt’ and this is a painful bubble waiting to burst …. So a common man must have enough savings to last a few years if without a job !
July 26, 2012 in TOI, it was reported that at least eight cases of FDI in some obscure real estate companies – each worth more than USD 100 Million – from Singapore have come under scanner , with Income tax Overseas unit (ITOU) having investigated them for alleged round tripping . Suspicion was raised when authorities detected huge FDI inflows into some little known real estate firms in India in the form of equity participation . A senior finance ministry official said they suspect these real estate firms to be front entities of some corporate houses and their black money has been routed through Singapore to acquire real estate in the country . All these FDIs coming from Singapore pertain to 2011. India received Rs.1.74 Lac crore worth of FDIs in 2011-12, of which Singapore contributed third highest at Rs.24,700.00 , after Mauritius ( Rs. 46,700.00 crore ) and the U.K ( Rs. 45,000.00 Crore). So , now we can understand why an Indian’s politician’s family have a flat in Singapore and why Indian Government along with a few ‘parties with vested interests’ are pushing for FDI ! Does it also not answer the question why Government opened the real estate sector to FDI in 2005 ? So that money stashed abroad can be brought back in real estate sector, and further money could be made by investing in and increasing the prices by buying land ! Does Lavasa ring a bell in your ear !
In absolute terms, bank’s bad assets have doubled in three years between 2009 and 2012 – from Rs. 68216 crore to Rs.1.37 Lac crore ( Mint 21st August , 2012). Bad assets in coal, iron and steel , mining , construction , textiles and aviation sector have been on the rise . Bankers see stress in telecom and power sector, too. The biggest beneficiaries of loan restructurings are large industrial houses in the manufacturing sector – 8.24 % of loans given to industries have been recast. In the services sector , the comparable figure is 3.99 % , and in agriculture loans , 1.45 %. It is clear that the small borrowers don’t get relief from loan servicing but the large industrial houses have gotton one ( Mint , 21, August ,2012. ). According to the same article , public sector banks have 90 % of the restructured assets , and this in my view clearly states one fact – a strong political – bureaucratic and business houses nexus to make loans and buy private jets and show companies in losses to the investors ! What right do the business houses have to question the Government on profligacy and spending when these business houses have huge debts but have their CEO’s / promoters taking home 10’s of crore in salaries plus stakes in companies and still flying private jets on borrowed money ! We know of the large business house where the debts are more than revenue but the flamboyant chairman / promoter flies on private jets ! Such company’s ( any company that has over Rs. 50 crore external debt ), boards must be restructured by the MCA (Ministry of Corporate Affairs) and independent directors with fixed term and remuneration should be appointed by the Government , so that the loans and shareholders money is not misappropriated by such promoters in the name of expenses and privileges !
Three more developments to be noted to give you a sense of state of affairs in the Indian economy :
|India||S&P rating is BBB (Minus) . Outlook – NegativeFitch rating is BBB (Minus ). Outlook – Negative ( TOI, 26th June, 2012 ).|
|Bharti Airtel||Downgraded by Goldman Sachs and other banks. ET . 10th , August , 2012|
|Retail Sector||Fitch has downgraded the ratings to negative|
Agriculture / Food crises : The US is facing a severe drought , and India has witnessed a bad spell of monsoon this year with erratic and unpredictably low rainfall . When India imports pulses and oilseeds , & the prices of these commodities is set to rise. Stock piles of the biggest crops will decline for a third year as drought parches fields across three continents , raising the food-import costs already forecast by the United Nations to reach a near record $ 1.24 trillion . Combined inventories of corn, wheat, soya beans and rice will drop 1.8% to a four year low before harvests in 2013, the US department of Agriculture ( USDA) estimates . Crops in the US, the biggest exporter, are in the worst condition since 1988, heat waves are battering European crops . Wheat production in Russia , the fourth largest exporter , will fall 20 % this year , and in Australia , output will decline 19 % and, God forbid, another year of bad spell of rain in India will spell disaster for this country . This situation warrants an emergency action ! On 9th August , 2012 on page 7 of ET, I read an appeal to the GOI by All India Starch Manufacturer’s Association regarding the crises due to non-availability of maize in the domestic market. Even if starch manufacturers were ready to buy maize at higher prices, it was not available and adding to it was the monsoon failure ! We are all awaiting a miracle to happen with Wal-Mart et al. But the reality is that these players have not much to contribute. We must not forget that , the supply chain structures in these companies are leaner and they work on shortest inventory, so clearly , these people will not do much for supply chain management . Also, the biggest contribution is stated to be creation of 10 million jobs in India . I wish to ask that these companies have a ROI ( Return on investment ) for each employee and so , clearly , we must see what is the cost that we are going to pay to these MNC chains for them creating 10 million jobs & the Government must come out with a white paper on this ? After all , Wal-Mart is not here in India for charity ! For sure , it would mean we paid will pay them dearly for doing what we could have done 100 times cheaper ! All FDI investments to me appear to be taking the ‘economy in debt’ to ‘sell off’ ( divestment )… We are back to what East India Company did to India but this time , it is not one company, but multiple East India Companies !
Also , a time to look at the sectorial composition of GDP 1950-51 – 2011-12 from CSO data
|1950-51||53.1 %||16.6 %||30.3 %|
|2011-12||13.9 %||27 %||59 %|
In 1950, India had a population of 350 million and now it is 1210 million. During independence, the population dependent on agriculture was 72% and now it is 54 %. But except Madhya Pradesh, where agricultural growth has increased to dramatically , not much is visible in other states .
Infrastructure – Construction firms sector ( Mint , September 11, 2012): for a set of 87 firms with a significant presence in infrastructure , sourced from Capitaline database , these numbers show an increasing difficulty to service debts
For these firms , the interest coverage ratio (ICR), for fiscal 2012, plunged 1.9 times , the lowest in at least five years. In other words , for every Rs. 100 of interest payments, the firms earnings before interest and tax ( EBIT ) stood at Rs.1.90 . The comparable number for 2007 was almost five.
In the fiscal 2012, at least 17 firms did not earn enough to pay the interest ! The list includes some of the bigger and better known firms such as Hindustan Construction Co. Ltd, Gammon Infrastructure Projects Ltd and GMR Infrastructure Ltd. This might give us a sense of where India is headed . First we oversold the India story, and now we are gonna pay heavily for it ….. !
Emerging Economy – really ? Let’s have a look at the following figures ;
- According to the NSSO survey( July 2011 – June 2012 ), 10 % of India lives on less than Rs.17 a day . As per the survey , half of the population in rural India was living on a per day expenditure of Rs. 34.33 , and this is after two decades of reforms in India !
- About 8.3 % of the population is unemployed
- 54 % of Indian families live in houses that don’t have concrete or brick roof ( Census, 2011 )
- 47 % of the total households live in houses with mud floors ( Census , 2011 )
- More than 800 Mn don’t have toilets at home
- Millions of tonnes of grains are stored in the open as we have no place to store !
- Tata shut production of passenger vehicles for two days to avoid inventory pile up due to bad economic situation
- 1/3rd of rural Indians and 1/5th of urban Indians forego treatment due to lack of money
- 47 % of rural Indians and 31% of urban Indians finance treatment by loans or sale of assets
- One child dies every 16 seconds due to malnutrition , diarrhoea or pneumonia
- All major currencies have appreciated against dollar but rupee has weakened . Even Singapore dollar is up by about 50 % compared to rupee last year
GDP & Growth without fundamentals & eventual Collapse : This is the India’s growth story’s fate . Let me give you two glaring examples and rest you can relate for your conclude;
I have travelled to the draught prone areas, and heartland of farmer’s suicides i.e. Vidharbha region of Maharashtra . Lanco is setting up a power plant in Wardha and has purchased land for as high as Rs. 25 lac per hectare ( as per the farmers statement ). So , let’s look at this example where Lanco purchased 7 acre land from a farmer for Rs.1.75 crore . A farmer who was drought and debt ridden for years becomes a millionaire overnight, and buys a SUV for himself along with a rifle , gold jewelry for his wife , builds a pucca house with the money he gets , and the money is spent soon as he did not know how to plan and how much to spend and the land is also gone to Lanco ! Also, money brought in a lot of vices ( please check the number of AIDS patients in the region ! ). This company Lanco, runs a debt of Rs. 29300.00 crore and has gone for CDR ( Corporate debt restructuring ). The banks that gave the loan should be ready for a NPA ( Non-performing asset )! So , the farmer , the company Lanco and the bank have become a non-performing asset ….. whereas , the farmer buying a SUV, Gold etc, would have boosted the sale of vehicles , gold, wines, apparel companies temporarily , and soared the rates & increased the GDP ! So this is growth in GDP but not a sustainable one or growth without prosperity !
Let me quote another example : Country auctioned the airwaves (spectrum), a few years ago for which the companies paid tens of thousands of crore for airwaves. The companies took loans , passed on the cost to consumers ( Co’s were not wrong as they had to get an ROI for their investors ) and finally , like Airtel with over 200 million customers, run into a debt of about Rs. 60,018.00 crore ……….So , let me consider an alternative scenario . If companies were given spectrum for a nominal administrative fee of say Rs. 500.00 crore + 50 % revenue sharing . In that case, the companies would have invested more into infrastructure and services would have been better and much cheaper , also , the Government could have made a cool Rs.80,000.00 crore every year taking the current revenue of all telecom operators to be Rs.160,000,00 crore, with probably very little debt on telecom companies and no such scams ! Today, the telecom sector has a debt of Rs. 200,000.00 crore and government barely gets anything of the total revenue of Rs.160,000.00 crore as its revenue sharing is in lower single digits . All have lost due to myopic policies of the Government . This is what I call GDP without prosperity , and this is what our entire Indian economy is passing through . It has no depth but debt ! What I call as lack of strong fundamentals, for which none of the parties have shown a concrete action plan . Companies have stock valuations and we are measuring our strength on the stock market indices which are not at all in relation to our ground realities , and only 2 % people in our country dabble in stock markets whereas 98 % suffer the hallucinations of this economic growth and GDP which is backed by loans , subsidies and political doll outs and have become a drain on our economy & our economy is becoming a bottomless pit ! Here I will not fail to quote the maiden address of our former finance minister and current President of India on 15th August , 2012 ‘It is indeed a wake-up call to Indian polity that even 65 years after independence and 74 years after Bose’s observation ( Subhash Chandra Bose in 1938 had flagged at the 51st session of Indian National Congress at Haripura that country’s primary challenges were poverty , illiteracy and hunger ) , the number of poor in the country today outstrip the population of the country in 1947’
All the sovereign wealth should be leased on 50-50 % revenue sharing between the Government & the private sector companies , and never be auctioned ! There is no other sustainable model for our meeting the financing needs and auctions only give a one-time income ! This must be made a policy so that every year , Government can make decent money and invest in the infrastructure, growth and give good governance to all Indians
Indian population a mere statistics ? Let us take the example of the recently concluded London Olympics . China with a larger population came 2nd with 38 gold , 27 silver and 23 bronze medals and India came on 55th position amongst 79 nations with zero gold , 2 silver and 4 bronze medals ….. this is what our leaders have led us to ! With committed leadership we must have made it the top by now …..
Let us do a rough sum of Indian economy which has a GDP of approximately Rs. 100 lac crore and we still borrow about Rs. 5.2 lac crore every year, and we already have debts of about Rs. 45 lac crore . India’s 42 % of the net annual tax revenues of Rs.7.71 lac crore goes in servicing its debt ( Rs.3.20 lac crore ). Another 25 % goes in subsidies ( Rs.1.90 lac crore ) – an annual amount that would actually be Rs.78000.00 crore higher if off-balance sheet fuel subsidies to oil marketing companies were included. The fiscal deficit of Rs.5.19 lac crore – 5.9 % of nominal GDP – is 67 % of the net central tax revenue . This was detailed in TOI dated 19th August 2012. I had read somewhere that , 54 % of Indian’s income goes in interest payments on debts taken for decades , 30 % is the cost of running the inefficient Government & bureaucracy and 16 % for subsidies ……so I keep wondering , does India have any money at all to invest in infrastructure or for future !!!! ( Hope I am wrong in remembering these numbers and India does better ). If not , time to take action !
According to Apparel Promotion Export Council ( APEC) , an estimated 4.5 million jobs have been lost over the past 3.5 years . Do our policy makers know how an ordinary Indian would survive without a salary for even a week and what pains his family and relatives pass through him being a jobless !
If all of you witnessed the discount sales season, it was advanced and even extended to make up for the shortfall , and this must show the desperation from the companies to meet the numbers . Unfortunately , If corrective steps are not taken immediately , we will have more companies getting into CDR or closure and millions of jobs might be lost till 2015……worst is yet to come !
Let me quote a facts about why India gained political independence and what was the average age of leadership . Maulana Azad became the President of INC at the age of 35 , Bose became the President of INC at the age of 41 and Nehru became the President of INC at the age of 40… So now we know why we got political freedom and why we have not been able to get economic freedom ??? For a nation with more than 65 % of the population below 35 years , it is important to take care of the representation of youth to lead this country with fresh innovative ideas for a double digit growth and that too grounds up. Though our policy makers tell us that we cannot grow at about 8 % , but the fact is that, in 2011 calendar year , 12 countries clocked more than 8 % growth and some of them like Ghana , Iraq , China , Argentina and Turkey are not exactly small . We have been capped by the ‘old school of policy makers’ and their thinking , who believe that they know all and what they do is right ! This has to go now ! We need leaders with a nose on the ground , good governance and a strong political will and rest will fall in place . Government must earn from the rich and middle class, and help upgrade the lower income class to middle class on a ‘mission mode’ basis by empowering them by providing them training , education, healthcare and technology .
Our country’s finance ministers have taken to ‘Populonomics’ ( Economics of populism ) , and not ‘economics’, and this has clearly shown the results to the common man . India is heading towards an economic disaster and short cuts like FDI are short lived solutions !
I can bet you that if a party rises above caste , religion ,reservation, dynasty , and parochial regional politics, it is sure to win the youth and come to power without taking to populism !
It is the time for the finance minister to move from being an ‘efficient tax collector’ to ‘passionate creator of wealth through innovation & entrepreneurship ’. India is the only country in the world at this time that has ample opportunities for each problem to be solved and is a fertile basin for innovation ! If you were born as a human- being , you must be lucky, but if you are born as a human -being and that too, in India , you must be the luckiest on earth, and this describes our India today and what it can offer to the world !
All ministries must have wealth creation strategies ! Just imagine that for the year 2012-13, India will have gross tax receipts of 1,077612 crores and expenditure of Rs.1490925 crore…. Even if we do the sell-offs , we still cannot pay off the Rs.45 lac crores of debts that India has ! Which assets will be left to sell for our next generation ( oh boy that’s too far , I must say in the next 10 years ) ,to sustain our economy ? I think then , our Government will call upon the US President and ask his farmers & companies to come and invest in Indian land and make it more productive , and that will be the final sell off of this once a great nation i.e India
I am not an economist, though , I have studied economics during my graduation ( but I must confess that I do not remember anything I studied during graduation J , and I am glad that I don’t remember anything J) All that I have written here is a common man’s perspective from the data and facts available in the public domain. I have researched the state of economy well over five months to help our dear policy makers to do a better job and making the life of a common man better and not bitter !
I am leaving to US for two weeks on 14th October evening , and on my return, I will launch www.indiawewant.org ,and would welcome your suggestions and participation
With best wishes
Rajendra Pratap Gupta
Economy I Healthcare I Retail I Innovation
Indian Economy From Aviation, Retail , Healthcare & SEZ Perspective
A lot of experts spoke about the robustness of the Indian economy when the global recession of 2008 did not entirely slow down India’s growth. Experts spoke at length about the pragmatism of India’s central bank leadership and its policies to have evaded the crisis. They even spoke about the sturdiness of the capital market and the role of the regulatory authority. Today the global crisis is over in most of the nations. United States is back on track with the unemployment figures at a controllable rate and the retail spending picking up. Similarly Japan is expecting the return on investments it made after the Tsunami crisis last year. The amount spent on reconstruction has boosted the economy and it is expected to grow at respectable 2 percent this year. Only Europe seems to be lagging behind, however it must be taken into account that integrating economies of over 30 nations is a daunting task and credit has to be given to EU’s leadership for having dealt with the crisis in a respectable manner.
When compared to the growth rates of these developed nations India’s 7.6 percent growth rate seems to be enviable. So is everything great with the Indian economy? Is it really faring the way it is being projected? Every year fiscal consolidation is the buzzword yet the budget keeps running into deficit. The finance minister keeps promising to bring it under control yet deficit has increased from 4.6 percent last fiscal to 5.9 percent this fiscal year. Most of the deficit is on the account of food, fuel and fertilizer subsidies. The government keeps making provisions for the underprivileged but it is equally true that they are not getting the desired benefits. Most of the provisions are limited to mike & paper.
Let us evaluate the top most (so-called Sunrise ) sectors in India that are consumer driven and how they are faring – Retail , Healthcare , Aviation and also the ‘Oversold & over hyped SEZ story’.
We will have a moment of truth !
The India Aviation industry is in a tailspin. Every other day Air India, Kingfisher, Jet Airways etc are making the headlines for all the wrong reason.
Air India the state-owned company has been relying on frequent government bailouts for its existence. Air India alone was responsible for the 10 percent of the global aviation industry losses in the year 2008 while it handled dismal 0.35 percent of the global passenger traffic. It is also over staffed with over 500 employees per aircraft whereas the industry average is around 120.
Kingfisher airlines owned by the flamboyant liquor baron Vijay Mallya is in troubles. Banks have finally decided to withdraw support in terms of providing further debt. The only hope which the country’s third largest carrier can have right now is a government bailout. However there is a vehement opposition to such an action by the government. Experts and other industrial groups have strongly advised against such an action as it is a free market economy and it would amount to sheer wastage of taxpayers’ money.
Jet Airways has recently been in news when the tax authorities decided to freeze its account as it was about to default on its service tax payments. The Jet Airways spokesperson attributed the problem to rising crude oil prices and the high airport duties and lack of support from government in terms of policies. According to them the delay in service tax payment was a minor operational issue. However the mounting losses over past few years tell an entirely different story. They were in news few years back for having laid off over 1200 employees and later taking them back next day after intervention from a local politician.
Other airlines in India like Spice jet, Go Air etc. have been on the fringe and have been moving back and forth from black to red. An only Indigo airline is making profits. Several other have bowed down under pressure. They were either forced to shut down operations like Paramount Airlines or they managed to exit at the right time like Air Deccan and Sahara Airlines.
So what exactly is ailing the airlines in India? Rising crude oil prices are often quoted as the culprit. In India fuel cost is almost 40 percent of the operational cost of running an airline whereas in other countries it remains around 15 percent. High fuels cost give little margin to maneuver in terms of other aspects like offering attractive tickets rates and other offers. However this is not the entire picture. Even though the crude prices reduced from $ 156 barrel to $70 barrel in 2008 to 2009, the Indian carriers continued to bleed and posted losses.
The real problem is of excess capacity due to overselling of India’s growth story . India’s daily domestic passenger traffic is approximately 1.51 lakh passengers whereas the capacity is around 2.16 lakh passengers. Imagine the revenue loss everyday on account of unused capacity. This has happened only due to the mindless unplanned expansion by the airlines hoping to cash on the Indian Incorporation growth story sold by the gang of politicians right from Sonia , Manmohan & inefficient Pranab and highly promoted Montek ! The airlines promoters were chasing numbers which was arrived on mere speculation & playing a ‘Valuation game to make quick buck’. They went on buying spree and expanded their fleet. Today the aircrafts remain underutilized. India has the aircraft flying hours of 12 per day compared to 16 per day internationally.
Looking at the complete picture it is difficult fix the responsibility on the airline owners. They are capitalists who are driven by market forces. They anticipated growth in market based on market forecasts and other factors like projected rate of growth of GDP. They expected growth in industrial output and service industry output and subsequent increase in airline travel. However the reality was far removed from it. The India Incorporation failed to deliver and they were left in lurch. Today they are hoping for a miracle to save them from their predicament.
Losses Made by Major Domestic Carriers in India
|Carrier||Cumulative Loss 3 years (Cr)|
According to the experts the retail trade industry in India is having a bright future & is consumption driven due to the ‘reducing poverty due to social schemes and increasing middle class due to India’s growth story ‘. One of the studies by North bride capital expects it reach about USD 850 billion by 2012. Out of which organised retail will be having a share of over 20 percent. In numbers it over USD 175 billion. That is a huge market. According to others this figure will be achieved by 2015. Similarly other reports have painted rosy picture for the entire industry. Currently it is increasing at a rate of 5% yearly. A further increase of 7-8% is expected in the industry of retail in India by growth in consumerism in urban areas, rising incomes, and a steep rise in rural consumption.
As per consulting firm KPMG’s findings in a March 2009 report, the organised retail market in India has witnessed steady growth at 15 per cent in fiscal 2009. It will grow much faster, at the rate of 30-35 per cent annually, than the traditional one in the coming years. Fast moving consumer goods (FMCG) and apparel sectors are likely to drive this growth.
According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010.
A India’s Retail Market Report by Boston Consulting Group
Total Size ($ Billions)
Organised Retail ($ Billions)
The true story of the retail industry: It has become a ‘Valuation game’ due to over selling the India story of the growing middle class
Subhiksha, Vishal Mega Mart, Koutons , Wadhawan group’s Spinach etc; do these names sound familiar and have something in common. Yes these are players in the organised retail industry who have succumbed and failed to deliver at their promoters expectations. These chain stores were at one time case studies of India’s organised retail success. So what actually forced them lower their shutters.
According to Jagannadham Thunuguntla, head of SMC Global all these cases are classic examples of the retailers getting carried away by the India’s fascinating growth story and the phenomenal rise of the middle class.
The phenomenon is not limited with these cases mentioned above but also with the so-called successful ones in the industry. Country’s largest department store Shoppers Stop for instance posted an overall loss of Rs.4 crore in the last five years, while its debt soared to Rs.390 crore. The Tata group’s retail arm, Trent decided to close down its loss making chain, Fashion Yatra. It was launched in Oct 2008 and it was aiming at low-income shoppers in Tier 2 – 4 towns. Similarly Reliance Retail decided to close its Reliance Wellness format and not only that it scaled its hypermarket format down in some cities. Hypercity closed down its catalogue selling venture and also got rid of its Gourmet City format.
For the modern retailers penetrating further into urban markets has become a challenge. They have no option but to continue to create, preserve and then destroy the store formats they have come up with. Having closed down and revived several formats, most retailers have realised they need to constantly experiment with them to stay afloat.
So we can clearly see that India’s organised retail industry, which has the coveted potential of nearly a billion plus customers with enough cash to spare, has so far claimed a number of players, small and large. These players expanded too soon based on mere speculations.
While these retail stores were expanding and accumulating debts they hoped that the middle class with disposable income would be ready in short time to support them. Things did not turn out the way they had planned. India Incorporation failed to deliver and along with that came the global economic crisis. These firms ultimately paid the price by closing down their shutters. For instance Subhiksha had expanded to over 1600 stores country-wide entirely on debt. This was a blunder that it committed as it was counting on the rising customer demand which was only on papers.
Not only the growth stories are misleading, at the same time the country’s back-end is not developed and huge investments go into developing it. The vital supply chain required for the retail networks are entirely missing. This leads to a huge inventory cost which the small retailers are unable to cope up with. Take for example, it is estimated that in the food retail business in India, the wastage due to lack of proper storage facility is staggering 40%. This entire situation is largely the result of the lack of proper policy framework from the government.
The Indian retailers like Future group , Reliance and others are backing FDI so that they can get investment and save themselves from the fate of Subhiksha , Koutons , Gini & Jony , Spkykar , Vishal Mega mart , Foodland super markets, Surya Group etc . We have more companies going into CDR – Corporate debt re-structuring post the closure of the financial year 2011 ( March 2012 ). Banks do not wish to announce the failures or NPA’s in this year.
Ideally , retail businesses should have been making money due to consumer demand but the fact remains that India’s income and growth story is limited only to 6-10 towns and impacts less than 10 % of India’s population
SEZ’s in India
India adopted the concept of zones from as early as 1965. Kandla in Gujarat was the first Asian export processing zone till the advent of the modern SEZ’s as such zones are now known as. With the passing of the SEZ Act in 2005, it was hoped that the Chinese success story would be replicated in India. It was expected that investor’s confidence would be established in the Government’s commitment to a stable policy regime. The real aim was to generate greater economic activity and employment with the establishment of SEZ’s following the Chinese model of economic growth !
There were numerous applications from multiple sources with individuals, indigenous companies, foreign MNC’s all rushing to have a share in the pie. Sadly it was a short phenomenon. The initial excitement was over as the problems started cropping up. Today in the last two years, as many as 60 applications for SEZs have been withdrawn, while 35 developers have applied for de-notification, according to data by CB Richard Ellis (CBRE), the real estate consultants.
Till date, the government has approved 584 SEZs. There are 381 notified SEZs, of which 148 are operational. Of these 148, only 17 are multiproduct SEZs. The remaining ones are SEZs dealing in engineering, electronics, IT/ITeS, hardware, textiles, bio-technology and gems & jewellery.
So what exactly is wrong with the SEZ idea in India which paid its dividends in China, Poland and Philippines?
On the whole the SEZ idea in India seems to be very much the product of the irrational expectation which has been fueled by imagination.
Healthcare Companies : Most of the healthcare companies are ‘managing profits’ and as i write , a major healthcare ( hospital ) chain and a pharmaceutical conglomerate is about to wind up in the next 3 months . Imagine a healthcare & hospital company winding up ?
So the Congress party has sold the India story purely on ‘Imaginative basis and on speculative data’ numbers , have no idea of what is fueling inflation and what will deliver growth ? With all sunrise sectors on a downslide , it is better to replace these ‘ignorant intellectuals’ and bring in people who can understand the economy and run it efficiently .
Based on the governments high-octane pitches for the India’s growth story , consulting companies have brought out reports supporting government announcements , and business houses have approached investors or moved to stock market and raised money and have put up expansion plans . But the reality is that, India does not have a growth story with the current fundamentals being very weak and ‘Leaky’ social schemes are making the party rich and not the population !
Also, that the current stand of the government to raise the tax issue with Vodafone is a clear proof of what i am writing . India is desperate for funds and behaving like a dictator reversing a five decade legislation for just 10,000 crore ( USD 2 billion ). Does it not show the lack of morality and desperation for funds ? Rest will become apparent in April – May-June Quarter !
Lastly , the financial deficit of the government proves the rest ; all is not well with the India ‘bubble’ story ! Tough times are ahead , if we don’t take immediate action !
Rajendra Pratap Gupta
Healthcare I Retail I Rural Economy I Public Policy
The government’s decision to allow FDI in retail In only towns with a population of over 10 lac ( One million ) is totally flawed . India has over 8000 towns and cities, and if only the 53 flourishing towns get FDI , it clearly indicates a few things ;
1. All retailers would anyways like to be present in towns where there is business – Government is simply conveying & supporting the business plans for these big retailers
2. All retailers would be willing to invest in such towns ( be it front end or back end ) and not in smaller towns where real infrastructure investment is needed
3. This policy will lead to more migration from smaller towns to these big 53 towns . So property / real estate will go up and so will the prices of major services and goods and drive inflation higher
4.In fact , these retailers must first prove their success in the smaller towns and not the bigger towns, and make investment in the infrastructure in smaller towns
The MNC retailers must not be allowed in bigger towns before they invest in smaller towns or let them have two- three small towns and one big town if at all the FDI has to be allowed
Automatically , the real interest of these retailers will come in open !
Prime Minister Dr. Singh,
Yesterday , I attended the meeting of CAIT ( Confederation of all India Traders ), I felt really bad seeing the plight of the traders, and the hell they would be subjected to , should FDI be allowed in India at this point .
Over the last few months, you have rallied all associated departments and ministries to build a case for FDI in retail. I feel sad that you & your government have ignored the fact , that FDI in retail at this juncture will put a big question mark on the means of livelihoods of over a Crore traders in the country .
I have seen that you / your government has been saying that inflation will come down as Wal-Mart , Carrefour , Tesco’s of the world come to India ( Wal-Mart has already come in few years ago ! ).
Prime Minister , remember, that Inflation has not come down despite Wal-Mart being in India . Your government’s logic that supply chain will get strengthened and prices will fall is fallacious . FDI in retail is a wrong justification for strengthening the supply chain , as FDI in supply chain is already allowed, and a lot of wholesalers are already around and more can come in without needing FDI – Why are you fooling around Manmohan ji ? How low will you stoop now to push to agenda of foreigners !!
Even those who are operating Cash & Carry business , are issuing cards to individuals to buy from them, thereby , stabbing the small retailers . Shut down Cash & Carry immediately after a proper investigation . I go to Sam’s Club in the US ( For your information , Sam’s Club is Wal-Mart’s Cash & Carry Venture in the US). Anyone can buy a card for USD 40 and start buying from Sam’s Club. I have gone twice with my friends to Sam’s club and brought goods from the store , my friends are not retailers , but Indian professionals working in the US . So when these retailers do the same in India , what will we do ???
Your government has failed to understand the cause of inflation , and firstly , you said that recession caused inflation ; then recession got over but inflation did not come down. Then you said that irregular and deficient rainfalls are the cause of inflation. Last year , we had good rains and inflation still did not come down. Realizing that there was no answer with your US educated ( read brain washed ) consultants ( Rajan ,Montek, Kaushik & Sam ) , your government said that inflation was due to high growth and it would continue . Study our next door neighbor – China . They have had high growth with less than 5 % inflation !! All your predictions have failed !!
Also remember dear economist, that ‘inflation is reversible but FDI is not’ . What I mean to say is that , when BJP comes to power, it will bring down inflation , but if you permit FDI ( As your government is hell bent on it ) , we will not be able to reverse FDI . So think before -hand !! Don’t jump like the nuclear deal & do another fiasco !!
Sonia Ji is shouting aloud on NAC podium for poor people on one side, and on the other side , both of you have already done a deal with major international retailers , and are hell bent on cracking the back bone of small retailers by allowing FDI
Government has a flawed policy with regards to FDI, as you are saying that you will allow FDI in top 35 towns to start with. This goes contrary to strengthening the supply chain. If you really want to strengthen the supply chain then please ask this big giants to start retail in ‘C’ class towns and then come to B & A class towns !!
Your statement that farmers will get better value because of FDI in retail : Wal-Mart’s of the world are known for extracting even the ‘blood’ of suppliers !! Their labor policy record needs to be closely examined , and how many times they have been fined !
Also, Wal-Mart is failure in Japan ( social dumping & doubts about its quality ) , Korea ( Wal– Mart failed to understand local customers) , Brazil ( Lack of understanding about local culture ) & Germany ( due to cultural insensitivity ) .
I am producing an excerpt from a report
‘Walmartization does not travel well’ Clearly, neither Wal-Mart’s business concept nor its social dumping – the so-called Walmartization – work in developed economies with a social dimension. Many consumers shun the Bentonville giant and prefer to do their shopping in stores where they know that workers are treated correctly and with dignity. There is also more and more uneasiness and suspicion about many of the products sold. Squeezing the last drop from suppliers can hardly promote safety and quality. There is also a growing aversion against buying, consuming and using products which could well have been made under inhuman conditions. That the tide is fast turning against Wal-Mart at home has not gone unnoticed abroad. Consumers start to know that the retail giant denies its American workers their fundamental rights, and many of them vote with their legs, going to other stores if they have a choice. The poor business results in Germany, Korea and Japan should be taken seriously in Bentonville
Another report : This article appears in the November 21, 2003 issue of Executive Intelligence Review. Wal-Mart Collapses U.S. Cities and Towns by Richard Freeman
During the last 20 years, Wal-Mart has moved into communities and destroyed them, wiping out stores, slashing the tax base, and turning downtown areas into ghost-towns. This is accomplished through Wal-Mart’s policy of paying workers below subsistence wages, and importing goods that have been produced under slave-labor conditions overseas. Often, communities will even give Wal-Mart tax incentives, for the right to be destroyed. Wal-Mart both reflects, and is, a major driving force for America’s deadly implementation of the Imperial Rome model. Unable to produce physical goods to sustain its own existence, the United States, like Rome, sucks in imported goods from around the world, using, in this case, a dollar that is over-valued by 50-60%. America has been transformed from a producer to a consumer society.
I believe that Wal-Mart destroyed American Economy and now it is here to kill ours !! Also, since we know that Wal-Mart is a failure in four countries , please produce a report on those four countries .
Also, let us examine that how many small mom & pop stores have shut down with the advent of Wal-Mart in the United States ? Similar study we must do in China .
Let me also tell you why Biyani’s & Ambani’s of the world are wanting FDI ?
Let me ask these retailers one question ? If the retail trade is so good and profitable , why they have the problem in raising money , investing and growing their business – why do they need foreign investment ? The talk that these MNC retailers bring latest technology is also misleading , as Indian retailers are working in a different environment and all foreign CEO’s have been an utter failure so far in India . You can see the example of Reliance Retail ; How many CEO’s have been brought from outside India in the last four years ? I understand that recently a new CEO was hired from Wal-Mart China !! These traders are actually looking at exiting the business by selling their business to these multinationals to make a quick buck !! That’s the real reason they need FDI .
Once FDI comes , farmers will cry for a good deal and Wal-Mart would never give them a fair deal . On one side , farmers are forced to sell land and other side whatever is left with land & cultivation , they would be forced to sell to these MNC chains at a wafer thin margin .
Congress is a killer party for the poor !! Prime Minister Singh , where is your plan to upgrade the current Kirana stores ? Why are you not excited with their welfare . Give them FDI ( Finance from domestic institutions ) , and provide them training .
I call upon Shri Nitin Gadkari , President BJP to stand behind these standalone Kirana store and oppose FDI . We should post pone FDI for another five years and then revisit the issue. A massive peaceful agitation is called for to stop FDI in Retail for the next five years .
Mail is marked to Montek, Raj Jain of Wal-Mart , CAIT and all leading retailers & political parties in India
A Common Man
Rajendra Pratap Gupta