Indian Economy – Problems as on Sept 2017, and Way Forward

Published September 4, 2017 by vishalvkale

The enclosed article {Biblio. 1} by Mihir S Sharma, one of the few straight talking Economists on Indian Media, does raise some excellent questions. It is a superb analysis of the shoddy economic management – and also raises the fact that something is indeed broken. The economy requires deep seated reforms at core levels-  not vacant sloganeering grandiose plans. Quite correctly, the need of the hour is attending to the real issues that confront on the Business, Trade and Economic Front; as well as a straightforward analysis of what is wrong, devoid of Jumlaas and vacuous statements.
  



MACROECONOMIC BACKGROUND – OVERALL
All Macro-Economic Parameters are in the doldrums, as should be evident to all but the most devoted Bhakt; the time is now ripe for us to rise above narrow parochial statements, and try and get to the root of what ails our nation on an economic front. High NPAs, Low Credit Offtake, Slowing growth for 6 straight quarters, slow export growth and an economy on Government steroids… and many other parameters that we can assess – all point to the facts that this are not right, and there is something wrong somewhere that need correction. What is more, we are already at 93% of the fiscal deficit target for the financial year, and this is just the first week of September.
A glance at the Economy does not inspire much confidence; and this isn’t cyclical in nature. Sure it will turn around on its own – some parameter/s in the external environment are certain to get positive over time – allowing another burst of high growth, which will push the required structural changes into the background. It is just a question of time. Question is -we now have the opportunity, and a clear political mandate, to get some real reform going; can we take advantage of this? This does seem unlikely, as Media and public is once again focusing on the small good news of GST July Returns, which is like celebrating a 4 in an ODI when you require 22 runs an over to win!
MACROECONOMIC BACKGROUND – THE BIG BOYS
The Big Boys of the Indian Economy have no appetite for investment; neither do they have the required resources in their Balance Sheets to take further risk. The small boys, always under-represented in voice in Media, with little or no public imagination behind them, go unnoticed. Their performance, with both Profit and Revenue slippage in 16-17, is also rather worrisome; all in all, a bleak picture. Add to this  the rather unfortunate fact that access to Institutional Credit for these small players is still far from as good as it should be, a fact that goes woefully under-reported. Thus, we arrive at a situation where it is Government spending which is driving growth; rather a sorry state.
MACROECONOMIC BACKGROUND – THE SMALL BOYS
Another article, again by Mihir Sharma – kudos to him for a series of stunning analyses – points out : “A recent analysis of listed companies by the Reserve Bank of India showed that companies with paid-up capital of under ~50 lakh saw net profits fall by 23 per cent in 2016-17. Companies with sales of less than ~25 crore saw revenue fall by 44 per cent. This doesn’t look like a sector capable of reviving the supply of jobs. Nor is investment here going to be easy; commercial bank credit has slowed so much, and the government has been so slow to resolve the banking crisis that alternative forms of financing investment will be needed: Corporate bonds, for example. But, naturally, that helps only larger companies. If there’s a revival, it will come at the top end of the scale.” {Refer Bibliography}
GST
Sure – the GST will deliver its benefits over a period of time, be it tax base, regulated transactions, cost savings for businesses et al – but that does nothing the change the fundamental problem – low credit offtake, high NPA, declining sales and investments and so on. The problems of the SMEs will remain as they are – access to credit, low technology adoption, distributed ownership and operations, managerial skill issues and so on. That leaves us two choices – treat this as cyclical, and applaud GST… or push our sleeves and get to task of attending to what is wrong, avoiding grandiose statements and plans.
AGRICULTURE
To make matters more interesting, 233 of 633 districts are monsoon deficient as on date, and adding to this is other detailed analyses of precipitation distribution, making things uncertain, though not a cause for Alarm yet. One can only hope for a decent precipitation September month. Agriculture is just coming out of a long rut, and has seen a spate of loan waivers; further, it is a contributor to only 19% of GDP. Its issues are a debate unto themselves, and are far longer terms horizon solutions, which we do need to take – but that is another story, to be taken up later. The question in this overall backdrop – what can be done, firstly for immediate respite and secondly for longer term improvement?
WHOSE RESPONSIBILITY?
 At this point, the Bhakts get personal and state – why don’t you suggest a solution? That is a fallacious approach to take, as it  diverts attention from the issues, and shrugs off responsibility from the leaders we have in Parliament, in various think tanks, institutions, and other similar places. It isn’t my place, a part of the public voice, to suggest solutions which require data, and access, and power – neither of which I possess. We have these institutions for a reason – and I can only point out basis hardcore facts and data that things aren’t going smoothly, that a course correction is long overdue. I and people like me can only serve to try and direct public and Media attention towards the right path.
WHAT NEEDS TO BE DONE, AND BY WHOM?
On the longer term, one thing is clear – the SME sector needs to both upskill, upscale as well as get far better institutional support; some changes are being made in that direction, but far more is needed in various support terms from institutions. This is clearly a longer-term solution, and has further deep institutional process and structural reform that will be needed; not an easy thing to attempt, strong politician or not.  And thus, expecting an immediate revival in GDP, Jobs etc from this sector in the short term is expecting a bit too much.

That only leaves us with, as Mihir Sharma correctly points out, the larger boys – the ones who have scale, and established operations. In order that the NPA scenario gets clarified, credit offtake improves, and so on – it is essential we focus on these – or in other words, the domestic environment; rather than chase foreign money and investments, the need is to ensure local money gets mobilized for local investments, demand improvement steps be taken, private investment uptick starts post-haste; for, with the Government already at 93% of its fiscal deficit this year, it has little scope left in its balance sheets for any further activities – and last year, it was government investment that was a key factor in growth!

BIBLIOGRAPHY
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