Indian economic recession

In the budget, the FM Nirmala Sitharaman claimed that India’s economy would hit $5 trillion by 2025. In the weeks that followed, GDP growth rater fell to a six-year low of 5%; the RBI made a surplus transfer of Rs 1.76 lakh crore to the union government; and the government announced the merger of ten public-sector banks into four combinations. These announcements came against the backdrop of the precarious state of the Indian economy. The country is witnessing an economic slowdown that has spread from the auto sector to all other segments, the unemployment rate is at a 45-year high and the tax collections from the previous fiscal year presented an estimated shortfall of Rs 1.67 lakh crore from the revenue expected by the BJP government. The going seems difficult for both Sitharaman and the Indian economy.

• The RBI has lowered India's growth forecast for FY20 to 6.1% from 6.9% it projected earlier. The World Bank has cut India's GDP growth forecast from 7.5% to 6% this year.
• India is a consumption-driven economy. When consumers buy goods and services, the wheels of the economy turn. That has not been happening for several quarters and for various reasons.
• Fewer jobs (at 6.1% in 2017-18, unemployment was the highest in 45 years), a freeze in salary hikes and bonuses, layoffs and uncertainty in businesses are making people cut down on spending.
• Incomes and wages in rural India, where 67% of India's population lives, have been hit because of low food prices. Agriculture GDP grew just 2% in the first quarter of the current fiscal, compared to 5.1% in the same quarter of the previous fiscal.
• Consequently growth in private consumption expenditure is down to an 18-quarter low of 3.1% in June 2019. Savings declined to an all-time low because of static or falling incomes.
• Construction, which is a big employment generator, is decelerating because of the slump in real estate. Exports fell 6.57% in Sept 2019 compared to a year ago. Discoms are groaning under a combined debt of over Rs 2.4 lakh crore. Corporate sector revenue growth fell to an 11-quarter low and investments plunged to a 15-year low.
• The banking and financial services sector is in a mess. There is liquidity, but no loans are being given. Banks are tottering under a mountain of NPA's of close to 10% of their total assets. They are fearful of giving fresh loans in case they add to their woes. Non-banking financial companies, which are a major source of consumer loans, are in a mess of their own and unable to extend credit. And the string of collapsing financial institutions has further sapped consumer confidence in the system.
• The government's rescue acts like slashing corporate tax rates and unprecedented interest rate cuts by the RBI seem to be yielding no results in the short term.
• These are exceptional times and they call for exceptional measures. Indian government could take cue from the US Federal Reserve spent nearly 800 billion dollars to pre-empt an imminent economic meltdown in 2008.

The Indian economy is in a vicious downward spiral and the Modi government needs to stop worrying about the fiscal deficit & inflation etc and start pouring money into the economy to stimulate growth. They need to put money in people's pockets in every way they can. This appears to be the only way to get the jammed wheels of the economy moving again.

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Four years: Modi's missed, wasted & abused opportunities

The 2014 mandate was fueled by hapless frustration with the Congress-led UPA regime and, more pertinently, the Gujarat development model as an alternative. The campaign, the slogans, the rhetoric were populated with words and sentiments that the people of India wanted to hear. The 50-plus page BJP election manifesto was as crisp as a promissory note, listing imperatives and solutions. After four years of Modi's histrionics, with one year to go for 2019 general elections, we Indians are again at cross roads filled with dilemma and uncertainty.

1. Fighting Corruption ⬆
2. Checking Price Rise ⬆
3. Ease of doing business ⬆
4. The Insolvency and Bankruptcy Code (IBC) for resolving NPA's ⬆
5. Rural electrification ⬆
6. Pace of road building ⬆
7. Jan Dhan Yojana ⬆
8. Mudra Yojana ⬆ 
9. Fiscal reforms ⬌
10. Bullet Trains ⬌
11. Swachch Bharat ⬌
12. Railways modernization ⬌
13. FDI In Multi-brand Retail ⬌
14. Triple Talaq ⬌
15. Surgical strikes ⬌
16. AIMS, IIT and IIM in every state ⬌
17. International diplomacy & PM's frequent foreign travel ⬌
18. Medical insurance cover of Rs 5 lakh to 500 million low-income Indians ⬌
19. Recapitalizing PS Banks ⬌
20. Defense preparedness ⬇
21. One crore jobs creation ⬇
22. Dipped education & healthcare spending ⬇
23. GDP growth rate ⬇
24. Demonetisation ⬇
25. GST ⬇
26. No Lokpal yet ⬇
27. Black money from Swiss banks. ⬇
28. Cashless society ⬇
29. Make in India ⬇
30. Skill development program  ⬇
31. Doubling farmers income ⬇
32. Empowering Women ⬇
33. Kashmiri Pandits ⬇
34. Abrogating Article 370 ⬇
35. Ram mandir at Ayodhya ⬇
36. Zero Tolerance on Terrorism ⬇
37. Persecution of Dalits, Muslims & Christians all over India ⬇
38. NPA's of PS Banks ⬇
39. Privatisation of Air India and other PSUs ⬇
40. Universal medical care ⬇
41. Administrative and civil service reforms ⬇
42. Ganga clean up ⬇
43. Smart cities ⬇
44. Aadhaar Card ⬇
45. Implementing uniform civil code ⬇
46. Corruption in deals like Rafale, Vedanta, Adani etc ⬇
47. Tax terrorism ⬇
48. Implementation of AP Reorganization Act 2014 ⬇
49. Development Packages announced for J&K, Bihar etc ⬇
50. Desertion of NDA by allies  ⬇
51. Federal Polity ⬇
52. Institutional autonomy ⬇

Overall, the Modi government has done seemingly well in patches, due to low oil prices between 2014-2017, but failed in significant areas. Its electoral machinery is formidable. The irony is that Modi instead of imposing himself on the bureaucracy, the bureaucracy has imposed itself on Modi, imprinting its views, values, and methods. It is the taming of Modi by the babus. But after four years, BJP faces anti-incumbency in Hindi heartland states. If opposition parties puts up united face, the Modi government would be voted out in 2019. Combined efforts of Rahul Gandhi, Mamata Banerjee and Sitaram Yechuri only can help the Modi - BJP escape defeat in 2019 General Elections.

By any reckoning, India is worse than it was in 2014 when Modi ascended to power. Modi squandered away the benefit of low oil price regime for 3 years, which was  God's gift to Modi & India to the tune Rs.10,00,000 crores, with his senseless adventures, shortsighted reforms with immature design & implementation. None of the constitutional office bearers today are worthy fellows including Modi himself. Modi doesn't deserve any more chances. Who ever succeeds him will be successful simply because of inheriting worst performance India ever had. Modi will be remembered as one of the worst prime ministers, even below the infamous VP Singh.

Insolvency

The Global Financial Crisis of 2008 left behind a couple of lingering images – one the staff of Lehman Brothers Holdings walking out of office during the weekend with precious belongings, and the other was police walking Bernie Madoff to prison. In a way both of them were victims of the collapse of Wall Street. But Lehman CEO Dick Fuld is back in business, while Madoff is serving a prison term in New York. The contrast between the two celebrated titans of Wall Street is: one is bankrupt, and the other is a fraudster. A good legal system is the one that distinguishes between the two. 

• Indian banking practices have been bizarre in many ways. It is how they treated defaulters, especially the big ones. Banks feared that admitting to default is wrong, and in many cases they believed that tide would ultimately turn and the client would be lifted out of misery — not by actions, but by gods. Between the period of default induced by causes beyond the management’s control and the time of recovery, banks were throwing good money after bad.
• In most cases, promoters enriched themselves by inflating project costs, siphoning off funds was just fraud. Even before the project went on stream, promoters equity was back in their pockets and their stake is either zero or negative. The banking system was designed and operated in a way that was difficult to differentiate between the two. Many fraudsters were exploiting the economic conditions over their crimes. Banks were hesitant to go after the criminals for ending up being pulled up for poor credit appraisals and the cursed judicial system that took decades to deliver justice. 
• There were corporate frauds in the West, which included Enron, Worldcom, and Tyco. The perpetrators of these frauds are behind bars after prosecution. The Indian criminal justice system is leaky, and hundreds of cases have been pending for decades. The conviction ration is under 6% which lead to a popular belief that if you are reasonably influential to hire good lawyers, you can escape conviction for fraud. 
• These ‘wilful defaulters’ are white-collar criminals. It is time to treat them so. The country has the IPC and CrPC to try criminals and frauds. Those who commit financial fraud must be tried under these criminal acts, and not through the bankruptcy act. 
• Those who are genuinely bankrupt but are not fraudsters may be bailed out under insolvency act and exonerated from any liabilities under CrPC, but must be blacklisted for further assistance from institutions or public.

The lawmakers and banks must stop living by the concept of limited liability company and treat fraudsters as guests of honor. Unfortunately these fraudsters armed with vast amounts of robbed money are well connected and lead a privileged life in India and abroad. There is hardly any rich man in India, who had not violated laws, practices & traditions in their journey towards amassing wealth. The easiest way to getting rich is to lower the values, and rob public money with the active help of politicians and bureaucrats for a cut in the booty. And there are plenty of accountants, advocates, bureaucrats and politicians who will help these fraudsters in perpetuating this type of robberies and conceal them. 

Those fraudsters must be prosecuted and jailed for prolonged periods (10-20 years) and in any case they must be prevented to get to be back into any kind of business, debar all those people associated with ‘willful defaulters’ and should not be allowed to enjoy societal privileges. They must be blacklisted and debarred from all types of public activities and discourage from private activities. Bank privatization, without strengthening regulatory controls and improving governance, won’t prevent fraud, or curtail undue exposure to risk. The present day concept of  'privatizing profits and socializing losses' is unacceptable nonsense, as profit and loss bot must be owned by equity share holders only. In the absence of stringent actions, punishments and consequences, reckless actions and senseless risks by private people with the money which is not theirs, will continue to surface incessantly.

Why the fuss about Fiscal Deficit?

1. Budget deficit =      total expenditure – total receipts
2. Revenue deficit =   revenue expenditure – revenue receipts
3. Fiscal Deficit =       total expenditure – total receipts except borrowings
4. Primary Deficit =    Fiscal deficit- interest payments
5. Effective revenue Deficit = Revenue Deficit – grants for creation of capital assets
6. Monetized Fiscal Deficit =  part of the fiscal deficit covered by RBI borrowing

The Golden Rule of fiscal policy is that the government should borrow only to invest that benefits future generations and not to fund current spending, maintaining inter-generational equity. Hence, the best way is to spend the borrowed money is for projects like infrastructure. The policy suggestion is that government’s budget should have no revenue deficit, a situation where the government’s day to day earnings are not enough to finance its day to day activities.

• Overseas investors and rating agencies relies a lot on this number to judge the health of the country's economy.
• Fiscal Responsibility and Budget Management (FRBM) panel has recommended a fiscal deficit target of 2.5% of the GDP for fiscal 2022-23. The panel suggested 'escape clause' in case of over-riding consideration of national security, acts of war, calamities of national proportion and collapse of agriculture severely affecting farm output and incomes. Also, "far-reaching structural reforms in the economy with unanticipated fiscal implications" too can trigger deviation, not exceeding 0.5%, from the targets.
• This forces the government to walk the tightrope every time the budget comes, as it also has to attend to social sector needs and create enough stimulants for the growth engines of the economy to keep running.
• Any slip on fiscal deficit discipline puts the government at risk of inviting the wrath of the global rating agencies, whose outlook often determines the volume of investment flows into the domestic economy and markets. 
• Any government's move to go for additional market borrowing will be seen as a ‘negative’ that could widen the fiscal deficit. 
• A small fiscal deficit is a good idea but the problem is when the deficit swells and becomes untenable. In a high fiscal deficit environment, government borrowing can crowd out* bank credit, thereby forestalling any chance of capex revival.
  *is the high level of public borrowings that reduces the borrowing opportunity of the private sector.
• Fiscal deficit is met through borrowing by the government from the open market at competitive rate of interest, which increases the overall interest rate in the economy. It also adds to the burden on the future generation violating the principle of inter-generational equity.
• Surging oil prices mean a higher import bill for India and that will translate into higher expenditure. The faltering tax receipts, which are yet to shake off the twin impact of the GST and demonetisation will also widen fiscal deficit.
• Share sale in PSUs is not easy with the market outlook not that promising, limiting the government’s ability to mop up much revenue from that avenue.
• Credit growth in the economy is burdened with huge NPA loads forcing banks remain extra cautious in extending credit to industry. 
• Some economists and industry veterans say there is nothing so sacrosanct about this 'fiscal deficit' number and the government can always relax it a bit and work on it later on. It would be unwise to cut back on government expenditure, only to contain fiscal deficit, as long as that extra expenditure of the government is for investment and not for consumption.
• Ex-RBI Governor Raghuram Rajan opposed the higher fiscal deficit view for stimulating economic growth citing the dismal scenario of the Brazilian economy. He warned that the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies. 
• Higher inflation remains the biggest headwind in deficit dynamics. Retail inflation @ 5.21% in Dec 2017 was much above RBI’s comfort zone of 4%. RBI’s stand is that higher fiscal deficit will bring more inflation and may distort economic activities in general.
• This year, loans repayment & interest payouts will take up 32% of the centre’s earnings, pensions and subsidies 23%, state grants 23% and defence expenditure 16%. These repetitive expenses will effectively mop up 94% of the total budget receipts. That leaves little room for allocations to new ideas or schemes. Higher fiscal deficit indicates the fragile state of the Centre’s finances, and its control over interest, pension and subsidy expenses indicating extremely limited elbow room in deciding on its budget allocations. 
• The other problem with the expenditure pattern is that the bulk of the budget spending goes into consumption or maintenance expenses, with very little spent on creating new assets.

The analysis tells us that for government to be really able to launch bold new schemes or make a difference to citizens’ welfare, it needs to clean up its finances first — pare down debt, save on interest payouts, reduce pensions and subsidies and raise asset creation. It must also ensure that its receipts grow at a far faster pace than expenses in future, so that the debt can be paid down. Therefore, the success or failure of the annual budget exercise really has to be measured on the progress in these parameters over the years.


Govt breached fiscal deficit target of 3.2% (actual 3.5%) in the current year 2017-18, same as previous year. The budget for 2018-19 projected fiscal deficit target at 3.3% of GDP against the earlier target of 3%. The reason for breaching current year target is mainly due to demonetisation and GST resulting in lower revenues and higher expenditure. 2018-19 being an election year, the budget is not so conducive for higher revenues and govt populist expenses are likely to go uncontrolled. Rising NPAs are big drag on economy. Oil prices surge will result in lower GDP growth and higher inflation thus widening fiscal deficit. Modi has learnt in very hard way not to play gimmicks with economy with reckless adventures but people of India paid the price for no fault of theirs.

What to do with your money right now?

If you are just retired and with plenty of cash, retirement benefits, naturally you will have a dilemma what do with the money safely with maximum returns, liquidity and with minimum income tax liability. While equities and mutual funds seems to get you good returns, never go by television recommendations unless you have in depth knowledge of what you are set up to do.

• Never lose money. Focus on capital preservation strategies.
• Remember, risk exists every where. 
• Spread your money across asset classes; debts, equities, mutual funds, real estate and gold. 
• Retain certain amount of cash both at home and in bank to manage unforeseen situations.
• Make sure to have enough life, accident and health insurance cover for you & family.
• Stay away from hyped markets. That would be the right time to exit.
• Avoid cryptocurrencies unless you are tech savvy, prepared to gamble and lose.
• Don't lend money to friends & relatives. You may end up losing money and also relationships.

INSURANCE

• Insurance is not investment. It is the price you pay for some kind of protection of your family against contingencies of unforeseen events like death / accidental death / hospitalisation shocks. 
• Do take appropriate life, personal accident and mediclaim policies for self and family.
• Don't buy equity-linked insurance plans (ULIPs). Your money goes to the agent and the insurer and not into your investments. They are losing propositions.
• Buy either term policies (these are the cheapest) or buy money-back schemes, which are also cheap but you get your money back. Read the fine print carefully rather than trust an agent's verbal assurances.

80C INVESTMENTS

• Investments in PPF, NSCs, 5 year Bank deposits, NPS etc. may save you on income tax liabilities, But be aware of 5+ year lock in periods.

EQUITIES

• The last two years equities have seen terrific returns from the stock market. Is the economy booming? No, but a lot of investors hope that it will start growing faster. 
• The World Bank and other institutions forecast that growth should accelerate in 2018-19. Many savvy investors have already entered the stock market on that expectation. 
• As more money has come into the market, it has boosted share prices and created a positive feedback loop where investors have pumped even more money into stocks.
• Despite forecasts, markets could go in either direction.
• Unless you are an active watchful person, on daily basis, with propensity to exit as per strategy, risks are high.
• Index funds have shown persistent growth over years with lower risks. Invest in less risky index funds rather than in risky equities.
• Equities may not get you periodical returns but in long term they are sure get you impressive gains.
• Good to be a equities trader rather than and equities investor.
• Those who have time and inclination to do their own research may invest directly in stocks or via equity mutual funds. The second route is fire-and-forget. Both methods can fetch great returns. Both methods also carry the risk of capital loss.
• May be it is good to stick to mutual funds and commit to systematic investment plans (SIPs) for three years, or longer. These are likely to fetch excellent returns.
• The economy may recover. But uncertainty exists.
• Series of assembly elections and a general election scheduled in the next 15 months. Political uncertainty might cloud short-term returns. What happens if there are apprehensions that the Narendra Modi government will not return?

DEBTS

• Debt comes in many shapes and sizes. Bank fixed deposits are the default option. You can also buy mutual funds dealing in different types of debt. In addition, you can buy corporate debentures, or subscribe to corporate fixed deposits.
• Interest rates rise when inflation rises. If inflation rises, the value of money erodes faster. If interest rates rise, any portfolio of previous debt instruments loses value because that same money invested now could be earning more interest.
• Bank deposits are safest, highly liquid but with low returns. The new FRDI Bill highlights the fact that bank deposits are not guaranteed beyond the limit of Rs 1 lakh. That limit was set in 1993. The limit might get raised to Rs.5 lakhs, prior to the passing of Act. Be informed of this.
• Avoid PSU banks with huge NPA's. Also avoid private banks with low equity, lower reserves and higher NPAs. Any government would be reluctant to take this step, fearing a political backlash. Since many PSU banks are struggling to cope with bad debts bail-ins are now neither impossible, nor illegal.
• Mutual funds exploit changes in interest rates. Safety varies. Mutual funds that focus on corporate debt give much higher returns but take larger risks. It's important to understand that you can lose capital in a debt fund. So understand safety, risks and returns before investing.

REAL ESTATE

• Real estate is entirely local market. The investment is illiquid. Selling may take several months. But returns are impressive. 
• This segment has huge percentage of 'black money' intertwined with 'white money'. 60:40 is the default ratio. Even 80:20 is not uncommon. 
• Booms and busts are cyclical and occur side by side too.
• Sometime legal complications might get your investment locked for several years.
• Apart from politicians, corrupt bureaucrats and unethical businessmen, you may get entangled with mafia and local goons.
• So invest only in legally clear properties. Obtain the help of known advocates and chartered accountants. Remember brokers are not your friends.
• Stay away from hypes.

GOLD

• Gold and precious metals are the age-old hedge against inflation and uncertainty.
• But gold yields no interest and capital appreciation is uncertain.
• Making charges for jewellery add considerably to cost. It's still worth investing as security. 

Neither a borrower nor a lender be ... William Shakespeare

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Helicopter money

The Bank of Japan is getting flak for not announcing it as part of its recent stimulus package. ‘Helicopter Money’ is an idea that is doing brisk rounds in global economic circles.

What is it? 
Helicopter money is an idea mooted by Milton Friedman in his paper ‘The Optimum Quantity of Money’ in 1969 for governments looking to lift their economies out of a slump. “Let us suppose that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” Friedman’s theory was that the lucky citizens, thrilled with the windfall, would rush to spend. Higher money supply with no immediate change in output, would lift inflation. And improved consumer confidence would eventually prompt manufacturers to increase output and create more jobs, thus giving the economy a steroid shot to get it going.

Why is it important? 
In a bid to stimulate growth and fight deflation, governments have effected cuts in interest rates, turned to negative rates and unleashed many rounds of the infamous QE or Quantitative Easing. But GDP growth rates, whether in the US or Eurozone and Japan remain stubbornly low. Hence the recourse to more direct methods, like helicopter money.

Putting cash directly into the hands of consumers, it is hoped, will quickly kick-start a virtuous cycle of consumption that can boost up GDP. This is something that indirect QE, which transferred liquidity to banks in order to step up lending, couldn’t achieve. 

Of course, helicopter money, in today’s sophisticated world may not really have Phillip Hammond or Janet Yellen scattering bagfuls of cash from a helicopter. Instead, the British or American governments may decide to give tax refunds or tax credits or even make direct cash transfers to identified citizens. Some devious economists have even suggested pre-loaded smart cards with a certain amount of cash. If citizens don’t spend it within the specified time, the cash will simply disappear!

Why should I care? 
Sounds like a great idea! So when will the Indian government take to helicopter money to boost the economy? Alas, with the RBI watching over inflation and deficits like a hawk, this isn’t likely anytime soon. But we Indians can take comfort from the fact that we thought of helicopter money long before others did. MGNREGA paid cash to rural folk for 100 days of guaranteed work. In cases where that money went into benami accounts, that’s a form of helicopter money. On a more serious note, the excise duty cuts on cars and consumer goods announced in 2008-09 after the global credit crisis were a version of helicopter money too.

What about Pay Commission payouts? Well, strictly speaking, that cannot be termed helicopter money as it is recurring, and paid as reward for work. But these payouts can certainly serve the purpose of helicopter money.

The bottomline 
Helicopter money sounds wonderful, but it works only when people spend the money. Question is - will they hoard it?

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While the developed countries have been fixated during the last decade on ways to put more money in people's pockets to stimulate demand, India without any due diligence decided to go the other way, and freeze out a bulk of its citizens' purchasing power by demonetisation. What was supposed to be a surgical strike against tax cheats and counterfeit currency became an attack on the large informal economy that ran on cash and carpet bombed the whole economy. The evil thinking was that about Rs.5,00,000 crores would not get deposited in banks by the people holding unaccounted money and the bonanza would be used recapitalize the banks saddled with NPA's. But in the end, almost all of the cash came back. There was absolutely no need to demonetize the economy in order to recapitalize banks. It's no coincidence that a new GST, implemented was supposed to create a common nationwide market by removing a complex web of local taxation. But when it became operational in July 2017, the single market became a side show, and the tax itself became an enforcement mechanism debacle. Like in the West, where a decade of monetary adventurism has altered people's portfolio choices and made risky assets frothy, India has reached the same end point, by flying the money helicopter in reverse. Unlike quantitative easing, which is a reversible stimulus for the demand side of the economy, India's cash ban and now the GST are seeking to permanently alter the supply side. An ebullient stock market is merely betting this experiment will succeed. But increasing the speed in wrong direction and expecting desired results is insanity.

Banks NPAs & Recapitalisation

  

  Banks NPA's & NPA Ratios in June 2017

• As in June 2017, Banks NPAs are Rs.829,338 crores and NPA ratio is any where up to 24%. As on date  NPAs are in excess of  Rs.11,00,000 crores.
• Steadying a tottering financial system is never a graceful exercise, as American and European authorities discovered after the financial crisis. Without reform, another recapitalization is meaningless.
• The recently announced Rs.211,000 crores Banks Recapitalisation by central govt has three components:
  (i)   Budgetary support Rs.18,000 crores only.
  (ii)  PSU banks will need to go raise Rs. 58,000 crore from the market. Who will buy? May be cash rich public sector industries will be coerced to buy them. 
  (iii) The government will issue “Bank Recapitalization Bonds” for Rs. 1,35,000 crore which will be used to buy more shares in public sector banks. But these have to bought by the banks themselves. All these bonds have to be paid back in the future along with the interest by the central government. In effect, nation's future money is being pumped into today's banks recapitalisation.
• Effectively all 21 ailing banks will get additional cash of Rs.76,000 crores only, in next two years.
• Despite the roundabout method of recapitalisation, getting money into the banking system is a good policy. Having fresh equity makes it easier for them to acknowledge past mistakes and move on. Govt need to pump in ~Rs.75,000 crores every year over next few years from budget to make PSU banks vibrant.
• But every NPA has to be booked entirely by from Bank's equity only. Writing off NPAs will result in capital erosion to that extent. NPAs exceeding 10% will erode equity completely.
• Public sector banks have frozen up on lending because their capital to loan ratios will not allow any more.
• Since banks needs to have 10% of every loan from its equity, larger equity base will be helpful to some extent in resuming lending business.
• But banks recapitalisation helps adequate equity in books to resume lending of consumer deposit money.
• Any deposits withdrawal run by public will be disastrous for banks, with inadequate cash and massive deposits to service.
• But the banks lending money to its promoter (government) by buying bonds for funding additional equity acquisition of the same bank might be legal but is grossly unethical.
• With 80% NPAs irrecoverable, Banks would never initiate hard steps for recovery of these NPAs with massive haircuts contracting their equity.
• But when will they earn profits and cover up irrecoverable NPAs? With reforms and tight future lending and banks managed professionally without political influences and temptation of corruption, it would easily take over 10 years. Until then it is just hollow talk only.
• This Banks Recapitalisation exercise (equal to 1% GDP) may not increase fiscal deficit in  books, but will damage economy the way its corresponding fiscal deficit would have done or even more. 
• The best way and the only way is that banks take over NPA companies and liquidate them in auction and book losses. With what ever is left out they should draw their operations afresh and move on carefully. Any other way will be round about and postponing eventualities, achieves nothing and wastage of time & money.
• While national debt may create some assets, it also means that the present government is creating liabilities for unborn citizens reducing their ability to produce and makes them poorer.

Banks NPA situation was equally bad and needed recapitalisation ever since Modi became PM 3+ years ago. Instead of doing the right things for vibrant economy, Modi focused on vanity and spectacularity of new schemes and none of them have done any good for the economy. In fact reckless reforms like Demonetisation & GST have destroyed all sectors of economy. The only way our economy can grow and stabilise is with improving agriculture viability that enables rural spending and consumption and support the economy. But Modi & Jaitley are known for their tinkering the economy with disastrous effects only. Today, public deposits in banks in excess of Rs.1 lakh per customer are highly unsafe with RBI insurance covering up to Rs.1 lakh only!

This is a kind of economic collapse

JNU professor Himanshu says the economic slowdown is not the result of a one-off event like demonetisation, nor a technical problem but the slump began almost two years ago. This is a kind of economic collapse. The first step to tackle it is to acknowledge it.

• The economy is in a trough. GDP growth dipped to 5.7%. The Index of Industrial Production for July came in at 1.2%. Consumer Price Index showed that the inflation rate had risen to a  high of 3.4%.
• While Finance Minister Arun Jaitley acknowledged that the GDP numbers for the April-July quarter were of concern, BJP president Amit Shah told that the slowdown in the economy was due to “technical reasons”.
• These numbers might be an early warning of possible stagflation with low demand, high unemployment, decline in GDP and persistently high prices.
• There are many reasons for the collapse of domestic demand and the economic crisis India is facing and the government has limited room to manoeuvre and bring the economy back on track.
• RBI has confirmed, what all of us knew, demonetisation caused much pain without any gain. But demonetisation was not the trigger for the economic collapse one is witnessing today.
• It is a kind of economic collapse. The data is clear on this. Since 2015-16, growth rates have been going down. These numbers represent a very serious set of problems with the economy that have been neglected for a long period of time, which is why they have come to bite us today.
• Some of these problems started in 2013-2014. Wages had started turning negative in real terms since 2013. The problem of non-performing assets had appeared by then. The global recession was visible. These factors were well-known. The one big trigger was in August 2014, when primary commodity prices collapsed following a fall in oil prices. This hit farmer incomes hard.
• The droughts of 2014 and 2015 were difficult to deal with and agriculture GDP contracted and these factors severely dented agricultural incomes. With wages going down, rural demand collapsed by 2015.
• Jobs were not being created and wages were turning negative in real terms – growing slower than the rate of inflation.
• The government neglected the severe depression in rural demand for a long time that eventually spilled over to other sectors. Exports had been falling and the government ignored the trouble spots. Private investment has slowed down and credit growth is at its lowest.
• Construction has been the bulwark of employment in the non-agricultural sector in the past 10 years. But the government was in denial till chief economic advisor accepted the possibility of demand deflation in the economy. But this admission should have come earlier.
• In a normal monsoon year in 2016 after two consecutive droughts, when the situation was improving, demonetisation broke the back of the informal economy. It acted almost like a drought does on the economy. Demonetisation delayed hopes for the revival of the economy, and demand deflation was extended.
• Surely, GST has impacted the informal sector in terms of taxes and cost of compliance, which basically means hiring consultants. If it hits the unorganised sector, then manufacturing will be in deeper trouble in the coming quarters.
• The current scenario is uncertain about the next two to three quarters with no signs of private economic activity reviving. Worse, agriculture will make a very low contribution to growth with food grain production remaining flat. The livestock sector has been hit by political beef controversy that could contract the livestock sector as well. Excluding cotton, all major kharif crops have shown a decline in acreage.
• This year even though monsoon was good but its distribution is unlikely to contribute much to GDP in the next quarter.
• There are no visible signs of green shoots right now in the economy. The SBI has already pared down the growth rate for the entire year to 6.5%. There is almost a consensus emerging that the mess in the economy is far more serious than what people had assumed earlier.
• Farm loan waivers by nine states have sucked up the resources of state governments – there is a decline in capital formation in the states. That is telling us that state government expenditure towards investment is going down. The spending capacity of states has been squeezed quite dramatically and total fiscal deficit of states has increased. This impact the government’s ability to ramp up expenditure in the coming months to revive demand. By the end of June, the Central government had already reached 92.4% of its fiscal space. So, there is not much manoeuvring room left for either the states or the Centre.
• Government might have to breach the fiscal deficit target to revive demand. The government is hoping to collect more from non-tax revenue sources. It had a lot of hope for one source initially – dividend from the RBI which has been dashed. Two other sources the government is banking on are telecom auctions and disinvestment of PSUs. Both depend a lot on market conditions. Even though it has floated the idea of selling off Air India, it may not materialise soon. Given the market situation and the heavy squeeze on the telecom sector caused by the launch of Reliance Jio these decisions could get delayed.
• This is similar to what happened during the time of the AB Vajpayee government (1998-2004). At that time, too, the government failed to recognise that there were problems. The “India Shining” slogan came out of not recognising the economic situation. Inflation was low, wage rate growth was low, agriculture had almost collapsed. Foodgrain production on per capita basis had turned negative. This is true with this government also. Foodgrain production was 265 million tonnes in 2013-2014 and it has been projected up to 276 million tonnes for this year. So in four years, it has gone up by just 10 million tonnes, the lowest in the last 15-20 years. This is lower than the rate of growth of the population. In terms of per capita, that means foodgrain growth is negative. Incomes are negative in real terms. Agricultural investment is negative. This is similar to the NDA government period 1998-2004.
• But 2008 was different because the problems that hit our shores spiralled out of a global crisis. We had one of the best runs of growth between 2004 and 2008. The government distributed a lot, it earned a lot. The agriculture sector was clocking around 4% growth. Incomes were rising. Global commodity prices were rising, so terms of trade shifted in favour of the agricultural sector and farmers benefitted. Construction and manufacturing were growing at their fastest rates. That gave us the cushion to go in for a fiscal stimulus and revive demand.We were not so directly exposed to the financial crisis in developed economies and domestic demand was the prime driver. Right now, the engine of the economy – domestic demand – has collapsed.
• 2018 will be the last Budget the government will be presenting. In 2019, it would be a vote-on-account. The first thing is to acknowledge the gravity of the problem. The government has played blind for long to what has been happening in the economy. The finance minister has come on record to say that these are of concern. That is the first time the government has acknowledged such concerns. But if they actually have a very good idea of the magnitude of the problem is unclear. Right now the engine of the Indian economy, domestic demand, has collapsed.
• The share of private final consumption expenditure as a share of gross domestic product, it was roughly 62% during the third quarter of 2016-2017 – this is the festive season, so private consumption is usually high. Then, mid-way through this quarter, demonetisation happened and sucked out buying power. Compared to the third quarter of 2016-2017 with severe disruption in its second half, the share of private final consumption expenditure in gross domestic product has come down now. in the last quarter, it was down to 57%. That should be a worrying sign.
• There have been too many disruptions in the economy at the same time. What is needed is somebody who can work hands on with the economy.
• The entire economic policy-making group including the RBI in it. The policy-making is never one individual, it is a collective effort. Unfortunately the government’s ability to tap into a pool of economists and experts is very limited. Niti Aayog is in transition now, RBI is already under fire, the chief economic advisor may change now. There needs to be a point where experts, economists and policy-makers come together.
• Differences are bound to be there. No two economists are going to have the same opinion. This government has far less differences than the previous one and that is its problem. Somehow the government must seize the moment and act fast. If this continues for long, it will take a disproportionately greater effort to recover to what is now considered a normal 7% growth rate.

The Wire: Wide Angle: Episode 10: Demonetisation Anniversary

Yashwant Sinha Indicts Arun Jaitley's 'Mess'

• I shall be failing in my national duty if I did not speak up even now against the mess the finance minister has made of the economy. I am also convinced that what I am going to say reflects the sentiments of a large number of people in the BJP and elsewhere who are not speaking up out of fear.
• Jaitley was, to begin with, a lucky finance minister, luckier than any in the post-liberalisation era. Depressed global crude oil prices placed at his disposal lakhs of crores of rupees. This unprecedented bonanza was waiting to be used imaginatively. The legacy problems like stalled projects and bank NPAs were no doubt there and should have been managed better like the crude oil bonanza. But the oil bonanza has been wasted and the legacy problems have not only been allowed to persist, they have become worse.
• So, what is the picture of the Indian economy today? Private investment has shrunk as never before in two decades, industrial production has all but collapsed, agriculture is in distress, construction industry, a big employer of the work force, is in the doldrums, the rest of the service sector is also in the slow lane, exports have dwindled, sector after sector of the economy is in distress, demonetisation has proved to be an unmitigated economic disaster, a badly conceived and poorly implemented GST has played havoc with businesses and sunk many of them and countless millions have lost their jobs with hardly any new opportunities coming the way of the new entrants to the labour market. 
• For quarter after quarter, the growth rate of the economy has been declining until it reached the low of 5.7% in the first quarter of the current fiscal, the lowest in three years. The deceleration had started much earlier. Demonetisation only added fuel to fire.  According to the old method of calculation, the growth rate of 5.7%  is actually 3.7% or less.
• SBI chairman stated that the telecom sector is the latest entrant to the long list of stressed sectors.
• The reasons for this decline have been allowed to accumulate over time to cause the present crisis. It was not difficult to take counter measures to deal with them that called for devoting time to the task, serious application of mind, understanding of the issues and then working out a game plan to tackle them. It was perhaps too much to expect from a person (FM) who was carrying the heavy burden (Defence, Divestment & Corporate Affairs) of so many extra responsibilities. The results are there for all of us to see.
• The only new thing is the reconstituted Economic Advisory Council of the prime minister. Like the five Pandavas they are expected to win the new Mahabharat war for us.
• Forty leading companies of the country are already facing bankruptcy proceedings. Many more are likely to follow suit. The SME sector is suffering from an unprecedented existential crisis.
• The input tax credit demand under the GST is a whopping Rs 65,000 crore against a collection of Rs 95,000 crore. The government has asked the income tax department to chase those who have made large claims. 
• We protested against raid raj when we were in opposition. Today it has become the order of the day. Post demonetisation, the income tax department has been charged with the responsibility of investigating lakhs of cases involving the fate of millions of people. The ED and the CBI also have their plates full. Instilling fear in the minds of the people is the name of the new game.
• Economies are destroyed more easily than they are built. It took almost four years of painstaking and hard work in the late nineties and early 2000 to revive a sagging economy we had inherited in 1998. Nobody has a magic wand to revive the economy overnight. Steps taken now will take their own time to produce results. So, a revival by the time of the next Lok Sabha election appears highly unlikely. A hard landing appears inevitable. 
• Bluff and bluster is fine for the hustings, it evaporates in the face of reality. 
• The prime minister claims that he has seen poverty from close quarters. His finance minister is working over-time to make sure that all Indians also see it from equally close quarters.
• P Chidambaram said that Congress is happy that Yashwant Sinha has echoed their criticisms of the government. He also tweeted "Yashwant Sinha speaks Truth to Power. Will Power now admit the Truth that economy is sinking?"

Everyone in the country knows our economy is distressed and in deep trouble due to foolish acts of our PM & FM. Some speaks and many (BJP/Modi bhakts) won't. After inflicting irreparable damages, what is the point in appointing 5 member Prime Minister Economic Advisory Council or working out on a meager Rs.50,000 crores stimulus package or announcing Rs.16,000 crore free electricity for all by end of 2018 benefiting 4 crore poor people. Any change in economic direction will take few to several years and nothing much can be expected before 2019 elections. Destroying the institutions like Planning Commission etc have had its effect for this directionless economy. Unless Modi learns to respect experts and take their advice - discarding the habits of consulting quacks and astrologers, India has no future. Alternately, people of India may find Modi's substitute in 2019 and they will.

Bold poser from DP Bhatejaji, Ex GM, Bank of India to PM & FM

Today I have posted the following on the Facebook page of PM Narendra Modi and sent an email to FM Arun Jaitley. For information of all my friends.

Respected Prime Minister Shri Narendra Modi ji,
Respected Finance Minister Shri Arun Jaitely ji,

First of all I extend my sincere thanks in anticipation that you will spare a few minutes of your valuable time to read and take suitable action in the matter.

I am a senior citizen and on 01.08.2012, I put Rs 40 lakhs in a nationalized Bank for 5 years. I was being paid an amount of Rs. 35,352/- every month (of course subject to income tax) enabling me to lead a worry free life financially. Now on maturity I have reinvested the amount in the same Bank and I will be paid Rs. 26,489/-; a shortfall of Rs. 8863/- i.e. 25% over the previous return, per month. Can you please advise me from where I should make good the loss or sacrifice consumption of medicines or atta or dals or vegetables or fruit or milk or what?

Practically your government after taking over in 2014 has done nothing for senior citizens. No additional facilities extended but withdrawal of what existed in 2014. No commodity or provision item is available at the price of 2014. Yes, you have been able to bring down the figures of inflation and indices but not the actual prices. Every off and on the prices of some essential daily use items go rocket high like dals, chana/besan, salt, onion and now the tomatoes. At that time we cannot even dare see those items. 

I know you have political and the theoretical replies for these issues like interest on deposits and advances in banks depend on demand and supply. The prices of daily use items vary with seasons being agricultural products. But the straight upward shoot of prices cannot be justified by these reasons. If the government wants to provide cheaper credits to the trades and industries, it should not be at the cost of depositors. Banks are sitting over volcanoes of NPAs and all good money is being diverted for bad money. 

But is it not the duty of the government to enable the senior citizens to lead a respectable life who have spent their golden years in serving various organizations and finally the nation? Government cannot see the other way. I am at a loss to understand from where this deficit of 25% be met. Is any of the minister/MP/MLA is ready to cut his salary and allowances by this percentage? If not, then why the public especially the senior citizens? 

Perhaps it is because that, like you, we do not have the power to fix our own salaries, allowances and perks and getting everything for full year, for sessions of total of 3 months and that too attending sessions at their sweet will. When the matter of increasing your salaries comes, you pass the same just in 2 minutes with no discussion, with all heads together be it from ruling or opposition benches. For this increase, you totally over look the cost to the exchequer, deficit, economics and any other factor.

The government had started a scheme for deposits of senior citizens and the rate was 9.20% but In July, 14 it was reduced to 8.3%; the amount limited to Rs 15 lakhs. This is totally unjustified. The rate should be a minimum of 12% and the amount limit should be equal to what a person gets as terminal benefits. The government should ensure financial respectability to the senior citizens to walk with their heads straight.

I am sure you will understand the plight of the people whose good part of expenses comes from the interest of their savings of life time.

Sorry if I have offended you in any way.

Thanks and Regards

D. P. Bhateja 2246 Sector 48C Chandigarh
Mobile : 9417819504

(Forwarded Msg)
Please forward to at least 200 ... this country is going to 🐕🐩🐈🐓🦃🦌🐪🐫🐘🦍

During past three years, during Modi's governance, citizen benefits/subsidies are curtailed or withdrawn, taxes increased, agriculture distressed and Modi & Jaitley combine proved themselves as takers never givers. Low oil price benefit for past three years was retained by central government, not passed on to consumer. Today, an MLA's lifestyle annual expenses are at least Rs.100 lakhs and MP's Rs. 10 crores. Their lifestyle is much more vulgar than erstwhile Nizam's. General election spending is mind boggling. A recent MP bye election spending was estimated at over Rs.500 crore and MLA bye election about Rs.200 crores. It is rumored that UP election campaign 2017 spearheaded by Modi costed nearly Rs.10,000 crores for BJP. Modi's 2014 PM election campaign, alone, is rumored to have costed over Rs.10,000 crores. All these are happening in Modi's India right under his nose and he lectures that he is fighting corruption. The anti corruption institutions like Lok Pal & Lok Ayuktha are in cold storage even after the Act was passed 4 years ago.

RBI warns against farm loan waivers

• Farmer loans amount around Rs. 3 lakh crores and farmer suicides during past two decades exceeded 3.18 lakhs. Needless to say agriculture is in distress last two decades. Mechanization, modernization, land reforms for land holding consolidation, warehousing, irrigation, quality inputs, marketing etc requires investment of about Rs. 3 lakh crores per annum for next 5 years. otherwise farmer will continue to be debt ridden and farmer suicides will remain unabated.
• No political party will win 2019 election without farm loan waiver promises. Till then farmers will avoid paying loan repayments, especially after Modi farm loan waiver promise for winning UP elections 2017.
• Large waivers like this will pull down economy backward by 2-3 years and state governments running risk of economic collapse is all the more likely. But no escape.
• However these amounts are not so great when compared to Bank's NPA's in excess of Rs.8 lakh crores and another Rs. 6 lakh crores as stressed investments in Telecom sector. After all Agriculture is livelihood for majority of Indians (less educated and less skilled) and the only avocation in rural India.
• This is the price nation has to pay for neglecting rural India and chasing dollars and in the process making rich more richer during the past 25 years of liberalization.

If the RBI agrees with the finance ministry all the time, then it is superfluous; 

And disagrees all the time, then it is obnoxious ... YV Reddy

RBI Governor is neither subordinate nor equal to Finance Minister ... YV Reddy

My View:

RBI which kept stoic silence for Modi's senseless demonetization that costed nation over Rs.128,000 crores during Nov & Dec 2016 months and insurmountable consequential damages, warning Modi now on farm loan waiver consequences makes me believe that it is a conspiracy by Modi & BJP to avert farm loan waivers after UP, for Modi is no friend of farmers and rural India.

Telcos in India deep trouble

• Until a year ago, all Telcos in India were fairly well off making impressive profits with stock prices attracting investors.
• With Reliance Jio launching its operations, a year ago, with its inaugural FREE offers compelled the existing Telcos to spend massive amounts in advertising and customer retention activities that resulted in erosion of their handsome profits and landing them with huge losses.
• The data with us suggests that the total EBITDA (earnings before interest, taxes, depreciation and amortization) of the sector on an annualized basis is Rs 65,000 crore, which is clearly unsustainable for debt of more than Rs 4 lakh crore," the SBI chairperson said.
• Now Indian banking sector already reeling under insurmountable NPAs of over Rs.7 lakh crores stands exposed to another huge risk of over Rs.4 lakh crores.
• While Mukesh Ambani's borrowings from Banks is over Rs.1,80,000 crores and his investment in Reliance Jio is estimated at Rs.1,50,000 crores against its original estimate of Rs.85,000 crores. His strategy was to destroy competitors and monopolize Telco business with its advanced VOLTE technology is dealing deadly blow to existing Telcos namely Airtel, Vodafone, Idea, Reliance Communications, BSNL etc.
• The ongoing consolidation in Telco sector in India will result in job losses to the extent of 40,000 this year.
• Mukesh Ambani used Bank's money to push Banks to the brink of collapse. It is a matter of time Telcos loans of Rs. 4 lakh crores will become NPAs. How Reliance Jio will pay back its Rs.1.5 laks crores is  a million dollar question.
• The loans to Mukesh Ambani were granted by Banks during Modi's tenure i.e. during past three years as quid pro quo for funding his 2014 election campaign expenditure.
• Whether Mukesh Ambani will be able to make profits for Reliance Jio amidst chaos in Telco sector and repay banks is another million dollar question. How many more years he will hang on, we will have to wait and see.
• In all Indian Banks stands exposed to monumental risk of Rs. 5.50 lakh crores in Telco segment, in addition to existing NPAs of over Rs.7 lakh crores.
• Since three years Banks were unable to invest in infrastructure segment and other high value projects due to paucity of funds. This has resulted in GDP growth looking southward in addition to the deadly blow dealt by mindless demonetization 2016.
• Meager budget support for inducing additional capital, public sector banks are simply biting time and recent ordinance with code for NPAs recovery being worthless and with discouraging global parameters, Indian economy today is spiraling down at breakneck speed with all economic indices looking southward there is no magic wand to halt this except looking towards sky for 'ache din'. But 'ache din' will come only when decisions are sound and implementation is faultless but not for rhetoric and high decibel shouting.

My View:

A decade ago while launching Reliance Infocom services Mukesh Ambani's statement is paraphrased as "I wouldn't be interested in a bigger piece of smaller pie but would rather aim at smaller piece of larger pie". But today he stands exposed to bulldozing competitors with his money power and establish monopoly in Telco market and eventually loot the consumers. All this facilitated by none other than Modi. While bank NPAs are result of reckless activities by UPA regime, destruction of Telco sector and monopolizing by Reliance Jio and further burdening of Banks and job losses is the creation by Modi himself.

Public money for private profits

Banks raise money by soliciting deposits from the general public or using other instruments available to them and use this public money to fund various projects of the corporate or business entities after due diligence. If a borrower fails to repay the money, a bank’s primary concern is to ensure its profitability and safeguard the interests of its depositors. Until 1994, this was the prevailing view of the banks and the Reserve Bank of India (RBI). RBI had by its circular dated April 23, 1994 directed all banks to send a report on their defaulters, which it would share with all banks and financial institutions (FIs), with two objectives:

1. To alert banks and financial institutions (FIs) and to put them on guard against borrowers who have defaulted in their dues to lending institutions.
2. To make public the names of the borrowers who have defaulted and against whom recovery suits have been filed by banks/FIs.

With the liberalization and unshackling of India’s economy, a paradigm shift occurred in this shaming-the-defaulter policy. It is well known that there exists a corrupt and powerful nexus of bureaucrats, bankers and politicians which always works in the interest of big corporate borrowers. Gradually but steadily, a case was made out that if large borrowers fail to repay their debt, the lending banks must make a business decision for the revival and sustainability of the business! This flawed idea was propagated as the nation was made to believe that governments or their institutions are not capable of taking such business decisions and it is incumbent upon lending banks to help revive their ailing borrowers, and to enable the lending institutions to take this call, instruments such as CDR and SDR were put in place by the RBI to allow defaulting corporate borrowers to laugh all their way to the bank.

From past experience, every banker worth his salt knows that once a business becomes a non-performing asset (NPA), the chances of recovery are slim. Thus, in order to do proper accounting of bad debts, banks would write off the borrowed money, and interest thereof, in a period of three years. In August 2001, the RBI set up a CDR cell. CDR, Corporate Debt Restructuring, is nothing but reorganization of a company’s outstanding debt. Under this arrangement, a borrower company is allowed more time to repay the debt, and the interest rates are cut to a minimum so as to reduce the burden of debt on the company. It is presumed that this would help a company to increase its ability to meet its obligations and come out of the red. Some part or whole of the debt may be written off by creditors for equity in the company. While CDR proved to be a useful device for the corporate defaulters to bolster their losing businesses with infusion of fresh funds at much cheaper rates without fear of being declared defaulters and recovery suits filed against them, this also allowed banks to show their books healthy as such debts were no longer taken as NPAs but as CDR.

However, the premise that such an instrument would not only help bring ailing corporate houses out of the red but would also lead to recovery of debt has fallen flat on its face. Given the experience so far, the instrument is unlikely to pay off. The RBI, instead of taking tough remedial measures to recover public money, has chosen to bury its face in the sand like an ostrich, as it stopped asking banks to report their NPAs to it in 2014!

In 2015 it was realized that despite CDR, NPAs had ballooned to over Rs. 3.5 lakh crore, RBI devised another strategy to help defaulting corporate borrowers evade punitive action. Now, banks could take recourse to the strategic debt restructuring scheme, wherein a consortium of lenders converts a part of their loan in an ailing company into equity, with the consortium owning at least 51 per cent stake. The SDR scheme provides banks significant relaxation from the RBI rules for 18 months. Loans restructured under the scheme are not treated as non-performing assets and banks have to make low provisions of 5 per cent in most cases. This again enables banks to report lower NPAs and higher profits for 18 months. By making banks majority owners and replacing the existing management, the scheme gives lenders the powers to turnaround the ailing company, make it financially viable and recover their dues by selling the firm to a new promoter. Loan thus restructured can be repaid in 25 years.

Contrary to RBI’s expectations, SDR scheme has met the same fate as CDR. According to unconfirmed sources, the bad debt now locked in the form of SDR stands at more than Rs. 1 lakh crore and most of the losers are again the public sector banks. If we take into account Rs. 3.6 lakh crore of acknowledged NPAs together with Rs. 3.4 lakh crore in CDR and Rs. 1 lakh crore in SDR, the total outstanding bad debt adds up to Rs. 8 lakh crore, and public sector banks account for over 90 per cent. With a cumulative market cap of about Rs. 2.7 lakh crore, the bad debts of all the nationalized banks are over three times their worth.

In a decision dated Dec 16, 2015, the Supreme Court ordered RBI to release information about its activities and the banks it is expected to regulate. Rooting for transparency in its functioning and calling for more stringent measures to punish non-compliance, RBI Governor Raghuram Rajan said in his New Year message to his officers: “It has often been said that India is a weak state. Not only are we accused of not having the administrative capacity of ferreting out wrong doing, we do not punish the wrong-doer – unless he is small and weak. This belief feeds on itself. No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more.”

However, RBI has shown it does not care a fig about those words of transparency and accountability as it is refusing to share information with RTI requesters including in clear violation of the Supreme Court order. It leaves no one in doubt on whose side the officialdom of the central bank stands.

Public money for private profits; 

Risk spread on the nation and profits privatized.

My View:
It is just a matter of common sense never to lend sick unit more money and expect it to turn around and repay the debt and also additional debt. It will never work. How our banks feel that this type of schemes will work is again a matter of simple guess. In public sector banks, executives work to please their political bosses not for banks and its depositors interests. No one is accountable or answerable. All will share the booty of wrong doings. After all the money belongs to depositors and nation and not their own. CDR and SDR schemes are fraudulent schemes designed with the objectives of  'Public money for private profits' and 'Risk spread on the nation and profits privatized'. Ridiculous it may sound but in reality, it will be the duty of poor people to support during bad times and during good times the wealthy & educated will knock off the benefits and demands poor people to wait for benefits to trickle down to them with time. The best example is Kingfisher Airlines which was lent over Rs.8,000 crores without any collateral security by our public sector banks and lost the whole money, while Vijay Mallya escaped. Almost all infra companies are saddled with massive loans from banks and their net worth dwindling and repayments unlikely in near future.

NPAs recovery by banks only gets worse in four years

At a time when bad loans are witnessing a surge, the rate of recovery of bad assets by banks has taken a knock. The rate of recovery of NPAs was 10.3% in 2015-16, against 12.4% in 2014-15 and 18.4% in 2013-14.

Demonetisation will put pressure on NPAs especially for SMEs whose turnover has been affected amid fixed interest costs.

The lower performance of banks is more due to the extra provisioning that they have done to clean up their balance sheets. As the economy recovers, the NPA levels will come down. The system has better recognition norms is comforting.

Rating agencies have voiced concern over public sector banks’ capital needs and inadequacy of funding options. They expect asset quality to be under pressure over next year. Despite government’s plans to increase capital infusions into banks, rating agencies cautioned that more injections were required to support banks’ credit needs, while the latter also manages pressures of asset quality, resolution of problem loans and elevated credit costs.

Banks are now pinning their hopes on the Insolvency and Bankruptcy Code, 2016 which can potentially release about Rs 25,000 crore capital currently locked up in NPAs over next 4-5 years. The code is likely to help India’s banking sector catch up with or even exceed the recovery rates of 32% and average time taken of 2.8 years in other emerging markets. Institutionalizing the code will be a long-drawn affair and it may not provide any material capital relief to banks over short term.

My View:
While Banks are saddled with huge cash due to demonetization improving its liquidity, this has left informal economy with deprivation of working capital and impact on this segment will obviously effect formal economy as well. With banks lowering interest rates, people will withdraw money to invest or lend to informal sector which pays much higher interest rates, despite risks. Since informal economy employs unskilled, illiterate, semi skilled, uneducated and less educated who are otherwise unemployable in formal economy, safeguarding informal economy is paramount.

Modi's failures

Modi ascended to power in 2014 riding on the tsunami of anti-incumbency of scam ridden Congress led UPA. While Modi is still drawing huge crowds abroad with his charisma and is darling of upper middle classes which are in complete disconnect with lower classes, peasants & rural population is a colossal failure in India during the past two and half years, despite favorable crude oil prices at less than one third of its peak prices. Their argument that "those who governed us for 60 years should not ask for an appraisal in merely 24 months" is untenable.


Here is the list of failures:

1. Industry stagnating and exports are falling consistently.
2. Inflation especially food inflation is rising.
3. Job creation dismal. Textiles, leather, metals, automobiles, gems and jewellery, transport, information technology and the handloom sectors together created just 135,000 jobs during 2015, 67 per cent lower than 421,000 jobs that were added in 2014, the last year of the Manmohan Singh government.
4. Make in India remains a slogan only.
5. Bringing back black money in Swiss banks etc in 100 days remains a shallow promise.
6. PSU Bank's NPA doubled from Rs.2.86 to Rs.5.71 lakh crores in the past one year, due to default by corporate's close to ruling BJP. Improving liquidity or recapitalization needed urgently for banks remain operational.
7. Despite crude oil prices falling by 70% from its peak prices, consumer sale prices were reduced by just 15%. GOI retained 85% advantage to itself by increasing excise duty etc.
8. Riding on the wave of low oil prices, Modi government hasn't made any meaningful impact on Indian economy so far.
9. The BJP had promised to increase the Minimum Support Price (MSP) at the rate of cost of production along with 50 per cent profit. Agricultural sector is in distress with  no hike in Minimum Support Price (MSP) for farmers.
10. The biggest failure, however, is the mishandling of the agriculture and drought situation across the country and the continuing neglect of agriculture. While Modi promises to double agricultural incomes, it is yet to be seen how he will achieve that target. Agricultural growth rate has fallen from about an average of 3.7 per cent per year under UPA to just about one per cent in Modi's tenure.
11. The drought situation was totally neglected. The drought manuals and rules by the government itself said that water trains and tankers are to be pressed into service as last resort and number of steps ought to have been taken before reaching that step which the government at the centre and state missed. Lack of seriousness by the government of India in assessing and mitigating the drought situation and crisis worsened afflicting nearly 33 crore Indians across several states. Drought is, perhaps, the only natural calamity one can plan against in advance, unlike floods and earthquakes. National Disaster Management Authority manual on management of drought speaks of "drought mitigation" as part of public policy and not just drought relief but this was clearly lost on the Modi government.
12. All schemes are being renamed and repacked with reduced central contributions passing on the burden on states. They are unable to conceive any new sensible scheme so far on their own.
13. Cross border firings and ceasefire violations in Jammu & Kashmir are at a high.
14. Modi's Pakistan policy and his foreign policy is defective. It has been driven by style over substance, adventurism over analysis; by self projection, vanity and petty domestic political calculations over larger interests. The ministry of external affairs has been more like a tour operator or logistics handler, and not a source of policy and executive inputs. Modi's relentless foreign travel remained pleasure trips burdening exchequer.
15. Income Declaration Scheme (IDS) remained a big failure, despite tough talk.
16. Demonetization of big notes of Nov 8, 2016, except for its secrecy in unveiling failed to achieve any of its stated objectives viz. black money, fake money, terrorist financing & corruption except causing disruption to civic life in all segments especially informal economy, agriculture and rural economy apart from causing innumerable difficulties for common man for exchanging old notes or withdrawing their own cash from banks. About 70 people died standing in bank/ATM queues and 15 bank employees died due stress and long work hours continuously. Manmohan Singh had rightly remarked that "I do not disagree with the objectives but the process of demonetization is monumental mismanagement and is a case of organised loot and legalized plunder of the common people".
17. Failed to recover Rs.8,000 crores lent to King Fischer Vijay Mallya who has absconded and banks have just written off as bad loans.
18. GST bill still incomplete.
19. Swachh Bharat, Yoga, LPG subsidy give up & Cashless transaction campaigns, even though good, doesn't deserve that much high decibel campaigns.
20. Smart Cities & Digital India projects are yet to take off from the ground despite announcements a year ago.
21. Has not fulfilled many of the AP Reorganization Act 2014 commitments or BJP promises of 2014 election campaigns to Andhra Pradesh. Whatever little has been done was with delay of two years reducing its impact and results.
22. Diverting lot of money for his pet project Ahmedabad - Mumbai bullet train which serves only rich & upper middle classes with ticket price of Rs.3,000.
23. Many agreements and concessions for enriching richer people but nothing for poor or rural population.
24. Modi and his Cabinet colleagues foreign trips cost the exchequer Rs.567 crore during 2015-16, an increase of more than 80% from the previous year Rs 269 crore. This is besides the over Rs.500 crore spent by his bureaucrats on their foreign travel.
25. Reliance has resorted to stealing gas from ONGC gas fields during 2009-11 to the tune of Rs.12,000 crores. Against the consultant recommended claim of ONGC for Rs.30,000 crores Modi passed orders on Reliance to pay up Rs.10,000 crores recently. This was contested in courts by Reliance.
26. Recollect BJP's political failed adventures in Uttarakhand and Arunchal Pradesh to usurp power leading to a suicide by an innocent Ex-CM in Arunachal Pradesh. It was rumored that BJP spent Rs.15 crore per MLA crossing in intense horse-trading.
27. NDA and all state governments are spending lots of money on advertisement campaigns while doing very little on the ground.
28. While Assam's BJP win can't be termed as endorsement of Modi's government, Delhi & Bihar's defeat is a clear rejection for Modi. In all the five states that went to the polls recently, BJP dropped its vote share since 2014, and minus Assam. Even the Congress party scored nearly twice as many Assembly segments compared to the BJP. The Modi tsunami is now withdrawing back to the sea and those who revelled when it hit the coast are now in a real danger of being drowned by it.
29. Artificial JNU controversy on nationalism is another black spot on Modi.
30. Modi government seemed more keen on confrontation than conciliation in order to get tricky legislation's passed. Consequently, very little has actually got done on the development and economic front.

The reason for the victory of Narendra Modi was the tremendous support he got from first-time young voters and floating voters who saw him as the best alternative then may very well change their opinion come 2019 and that is the nature of a fence sitter who isn't ideologically wedded to what the BJP represents.

Patriotism is the last refuge of the scoundrel but in the case of Modi's government, pseudo-patriotism is the last resort of the incompetent.

My View:

The last two years, if seen in totality, offer very little for the Modi government to gloat about. Modi government harping on the past that Congress hasn't done anything is futile. While Congress was certainly bad, they never meddled with the lives & livelihood of poor & peasants. In the absence of strengthening Lok Pal & RTI bringing Politicians, Bureaucrats, Judiciary & Businessmen under its purview, granting autonomy and teeth to CBI, CVC  & ACB etc and no steps to enforce transparency & accountability, Modi's talk about elimination of corruption & black money etc is shallow and is a mere lip service. Modi should do something for the nation with sincerity of purpose evident rather than blaming Congress for all the ills of nation even after two and half years of ascending to power. It sounds nice only during first quarter and second quarter but sounds awkward in the 10th quarter. Above all, Modi government in collision course with Supreme Court regarding judges appointment matters for prolonged periods of over an year doesn't august well irrespective of merits.