Painting a rosy picture

The economic growth indicators were seemingly favourable and the NDA government was in a celebratory mood until the demonetisation was initiated. The consumer price index (CPI) inflation in the comfort zone of 5%, considerable easing of food inflation, favourable monsoon of above 97% in most parts of the country (though 139 taluks in 26 districts of Karnataka were declared ‘drought-hit’ on account of 78% deficient rainfall), robust core sector growth in eight key sectors at 5%, and a 22-month high in Manufacturing Purchasing Managers’ Index at 54.4 (surpassing the 50 mark depicts growth and below 50, a contraction) and a surge in Services PMI to 54.5 in October depicts a rise in new orders.

The Current Account Deficit (CAD) as low as 0.1% of GDP, adequate forex reserves at $370 billion, a slew of policy initiatives like the launch of Real Estate Regulation Act, scheme for sustainable structuring of stressed assets (S4A), passing of the GST bill, e-mandis, have all resulted in showcasing India as a “bright spot” in the global landscape.

Responding to the “positive signals,” the RBI reduced the repo rate by 25 bps to 6.25% to prod banks to lend aggressively to industries and agriculture. However, the exuberance will be short-lived on misplaced half-truths and can betray us with the deepest of consequences in achieving our long term goal of “real dev-elopment” of wiping tears from every eye.

The need of the hour is to understand, assess and undertake quick “surgical attacks” on the critical issues plaguing our economy. The negatives and discomfitures are many. Fiscal deficit in September 2016 touched Rs 4.47 lakh crore which is 84% of the budget estimate of Rs 5.33 lakh crore for 2016-17. This can lead to “couple effect” of double deficit, with the CAD of $300 million tagged on to fiscal deficit, which can have adverse effects on the economy. 

We have also missed the target of $4 billion surplus CAD on account of low exports and gains from temporary windfall of low international crude oil (expected to rebound early next year) and commodity prices – hence, this is not a “durable indicator” of sustained growth.

It is shocking that the agriculture sector, which is the backbone of our economy, has been left in the lurch. Sixty crore of our population is dependent on agriculture, contributing 16% to our GDP. The government, however, seems to have allocated this critical portfolio to the vagaries of monsoon and to the act of god!

Very little is being done to resolve the critical issues plaguing this sector viz, creation of gainful employment, timely supply of high quality seeds, fertilisers, fixation of minimum support prices on scientific lines, provision of low interest credit from banks for longer tenure, timely bank transfer of subsidies to the farmers, calibrated mechanisation to improve productivity (not machine displacing men), establishment of warehouses, cold storages, elimination of middlemen, uninterrupted power supply (not for gratis), proper healthcare, education to children, affordable housing, skill development and 100% waiver of loan liability of farmers who are victims of consecutive droughts.

To add to the misery, slashing of import duties on wheat, potatoes, palm oil, ranging from 10-15%, will have serious economic and social ramifications. The rural distress, heavy indebtedness, poverty and mass suicides validate the time-tested idiom – an Indian farmer is born in debt, lives in debt and dies in debt.

The elephant in the room is the NPAs of more than Rs 9 lakh crore. Even the acquired stressed assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act are not being disposed of on account of higher auction reserve prices, lack of bidders and ‘doctored’ property valuations. Even scary are the defaults in the 60-90 days due, most of which are “door dressing”, which can explode with the bursting of the real estate bubble, expected any time.

Many schemes launched to address to this chronic disease of stressed assets – corporate debt restructure, strategic debt restructuring, S4A – are not yielding the desired results. It is all the more unfortunate that the critical sectors which require huge funding-power, infrastructure, roads and highways, mining, metals and real estate, have the highest NPAs.

‘Debt trap’
With banks developing cold feet, these sectors are now being catered to by Non-Banking Financial Companies (NBFCs) and Private Equity funds (PEs) at exorbitant interest rates, severely affecting their profitability and capacity utilisation, with many getting into the vicious cycle of “debt trap”.

The credit offtake by banks to industries and SMSEs is less than 10% – a historic low. This is preventing the kickstart of the investment cycle and shying away of private investment, leading to low capacity utilisation both in agriculture and industries. So then, what is the growth that we are drumming up and for whom?

The “noise” of certain rosy numbers of make believe is restricted to the urban consumer demand which is temporary and seasonal – the trigger being series of festivals and the windfall effect of the 7th Pay Commission. The GDP increase is driven by urban consumerism/services sector and not on account of real, durable, industrial and agricultural growth. Even the railways, which is the engine of growth, was short of earnings to the tune of Rs 12,000 crore during April-September 2016.

We rank as low as 130 amongst 190 countries under the Ease of Doing Business (EODB) as per the World Bank survey coupled with a rock-bottom ranking at 97 out of 118 countries under the Hunger Index. Demographic dividend cannot be achieved on an empty stomach. Real development is not possible with unequal distribution of income and wealth concentrated with the microscopic minority of the rich and the affluent vis-à-vis macroscopic majority of the poor, who are leading lives of squalor and abject poverty.

Rhetoric at high decibels and launch of a plethora of policies without the political will of implementation will be activity mistaken for achievement, full of sound and fury and signifying nothing.

(The writer is a Bengaluru-based banker)