Monday, 13 March 2017

Modi's India in economical fix

  • In true sense, our GDP growth is ~4% and inflation ~8%, even though fudged economic data indicates 7.1% and 5.88%, released by CSO (Central Statistical Office) with new series.
  • PSU Banks NPAs rose from over 1 lakh crores to ~6 lakh crores and are virtually paralysed.
  • Recent demonetization resulted in Banks expenditure rose by over Rs.50,000 crores which is not compensated by Central Government.
  • Even though demonetization resulted in lots of cash deposits during demonetization period, the same is being steadily withdrawn due to low interest rates, tax liability etc.
  • Fiscal & Revenue deficits for 2017-18 were pegged at 3.2% and 1.9% of GDP in the Budget Estimates, but the realistic figures would be much higher. No one trusts Govt figures, as so much expenditure will be incurred by executive orders, later.
  • With excessive national debt and revenue deficit, our ratings remained just above junk and our recent request for ratings upgrade was bluntly turned down by the rating agencies. They remarked that unless banks are sufficiently capitalized by over 2 lakh crores and NPAs reduced to safe levels, national debt reduced, Govt expenditure contained and fiscal reforms implemented speedily, ratings upgrade is at least 2 years away. This has hampered cheap credit flow to India and discouraged FDIs.
  • Modi's fancy projects like Ahmedabad-Mumbai bullet train requires investment of 1.30 lakh crores. Despite soft loans by Japan, an amount of about Rs.50,000 crores needed to be incurred by us which will remain white elephant for many more years.
  • In third year, Modi was compelled to opt for welfare budget due to demonetization impacting lower classes adversely.
  • In 4th year & 5th year, he will hardly get any chance to push reforms to reduce expenses and increase income due to continuing impact of demonetization and fresh obligation arising out of electoral promises of 5 states for which he just has 2 years.
  • Waiving of farmer loans as fulfillment of UP Election campaigning promises will alone need ~Rs.10 lakhs crores. But where is the money? Neither government has nor banks have. Any attempt to increase revenue deficit will push inflation upwards and becomes uncontrollable.
  • Not the least, fiscal reforms would also need lots of budget support but where is the money.
  • Hence increase of taxes payable by upper middle & upper classes and taxing petrol, diesel & LPG is imperative which would push inflation up and retards economic activity. If crude oil prices gets increased even this can't be done.

My View:
Modi will surely establish BJP with all the majority needed in Rajya Sabha for passage of any bill he wants and also chose President & Vice President of his choice. But bleak economic situation will tie his hands. So far he spent time delivering charismatic speeches and ridiculing Congress and its leaders but that mantra wont work any more. With tight cash situation, inability to mobilize internally or externally, reforms and development will take a beating. We will be heading for situation of 1990-91 in which VP Singh has landed the country after Mandal Commission report fiasco. Modi made gullible masses, educated middle class and elite rich that his magic wand will do wonders but he doesn't any such thing. If situation remains stable till 2019, he must thank his stars. Trump, China and Oil prices are major external factors which can destabilize Modi.

In the light of these realities it is worth while to revisit our economic development model and priorities and make sure it aligns with the development definition "creation of environment in which all people can expand their capabilities for enlargement of healthy life, education, and standards of living".

No comments:

Post a Comment