Serious AMDKs Fave Cuntry to Stop Ah Tiong Economy Sinks!

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Worst unemployment in decades strains Indian consumer loans
Stress is building up in the retail loan sector as corporate debt quality also worsens.
by
Ameya Karve and Divya Patil • Bloomberg
29 Aug 2019

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India's unemployment rate of 6.1 percent for 2017/18 was its highest in 45 years [File: Prashanth Vishwanathan/Bloomberg]
Credit analysts are keeping a watchful eye on signs of stress in Indian household debt after unemployment rose to a 45-year high and as lenders grapple with the worst soured debt levels of any major economy.
India's bad debt malaise has centered on corporate debt, and loans to individuals have been seen as safer and a growth opportunity for banks. Given the slowdown in the economy and a drying-up of credit from shadow banks, analysts are signaling potential risks, though publicly available data on personal loan arrears is sparse.
"There's stress building up for sure in retail loans," said Saswata Guha, director for financial institutions at Fitch Ratings. "Whether it manifests into higher defaults will depend on how the economy shapes from here."
The government last week unveiled steps ranging from concessions on vehicle purchases to hastening of capital infusion in state-run banks to help re-ignite an economy that's slowed sharply on the back of weak consumption. Defaults have increased funding pressure at India's non-bank financiers -- historically an important provider of consumer loans. That's curtailing their ability to provide loans, and having knock-on effects for consumption, according to Fitch.

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Non-performing retail loans rose to 5.3% of the total retail lending book at State Bank of India -- the nation's biggest lender -- at the end of June from 4.8% in the previous quarter. The bank has expressed confidence it can control any slippages this quarter.
"We could see trouble among individuals to repay their loans if the stress in the Indian economy rises," said Dwijendra Srivastava, chief investment officer of debt at Sundaram Asset Management Co. in Mumbai. "Businesses in India aren't doing well, so it may directly hit employment and in turn the ability to repay loans."

 

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33% of India’s skilled youth jobless: official survey
3 min read . Updated: 07 Aug 2019, 09:16 PM ISTIshan Anand , Anjana Thampi
Four out of 10 youth who received vocational training are out of the labour force, and a significant chunk of those in the workforce remain unemployed

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Plain Facts Skilled YouthJobs India
Reiterating the government’s commitment to the 'Skill India' initiative in her maiden budget speech, India’s finance minister, Nirmala Sitharaman claimed that the government is enabling millions to take up industry-relevant skill training, boosting their job prospects.
An analysis of the unit-level data from the Periodic Labour Force Survey (PLFS) 2017-18 however suggests that the reality is far more grim. Only a small section of the youth reported receiving any vocational training, and a large share of them were either unemployed or out of the labour force, the data shows.
Nationally, only 1.8% of the population reported receiving formal vocational/technical training in 2017-18. 5.6% reported receiving informal vocational training (such as hereditary, self-learning, and on the job training). This means 93% of the population did not receive any vocational/technical training from either formal or informal sources.
The youth (15-29 years) comprised more than half of the people who received formal vocational/technical training.

 

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Indian economy: The great slide
2 September 2019

• SANJEEV AHLUWALIA

It’s scarier going downhill than climbing to the top. Whilst on the way up, the heavyweight of inertia is known and hence manageable. Going downhill, inertia accelerates descent in unknown ways.
The economy is no different. Flab (public sector banks), poorly maintained brakes (uncompetitive private firms), worn gear cogs (lack of structural reforms) or inadequate signage (sticky real interest rates) can all accelerate an uncontrolled descent.
Luckily citizens are resilient. They fend for themselves, preserve their meagre resources, huddle defensively and sit out a storm. This trait explains the lack of demand today. People are hunkering down for the storm ahead.
The largest insurance system in India is the Indian family. Our House Hold savings rate is down to 17 per cent of GDP in 2018-19 from 23 per cent in 2012-13 because neo-middle class families are using their surpluses to keep jobless relatives afloat whilst the middle class and the rich are licking their wounds from stock market and realty losses.
Indian corporates – “organised” and “unorganised” are a pampered lot. Over the past two decades, they have revelled in negative or rock bottom real interest rates and “administered” rather than commercial lending practices. When Modi 1.0 unleashed determined efforts to clean grand corruption, the shutters came down on cosy past practices and bankruptcies multiplied.
Uneven performance in the public sector and poor accountability provides a low threshold against which private entities benchmark themselves, particularly in regulated businesses like banks, insurance, food, fertilisers, electricity, transport, health, education and logistics. Per RBI 2019, bank fraud takes between two to four and one-half years to be identified! No Prime Minister, since Independence, has spent mind-space or political capital on improving government performance – a structural reform numero uno on the to-do list.
Banking reform is another paused play. What the Finance Minister gave us on August 30, 2019, was an eyewash – the merger of ten publicly owned banks into four merged megabanks – Punjab National Bank, Canara Bank, Indian Bank and Union Bank of India.
In February 2019, Dena Bank and Vijaya Bank were merged into Bank of Baroda (BOB). Since then the BOB share price is down by 10 per cent whilst the BSE BANKEX increased by 3 per cent till August 29, 2019. The new mergers might similarly destroy market value. The Finance Minister assured there would be job losses from the mergers, possibly to avoid a confrontation with the employee unions. Savings from employee redundancies is the standard benefit from corporate mergers in the private world.
Merging bad banks into good banks merely masks the poor performer from public scrutiny by making the balance sheets fungible. However, minority shareholders of the better performing banks could rightly protest at being made to bear the burden of the dead weights in quality of assets, managerial capability or corroded management culture. Three-fourths of mergers do not succeed and if they do it is only over the medium term. So, don’t bet on the 12 remaining public sector banks achieving uniform star performance level any time soon.
Far more encouraging are the liberalised FDI norms for single-brand retail for making India a competitive market place and initiatives to pull “marquee names” and investment into the manufacturing sector. Also, the flight of around US$3 billion of investment funds from the market has collaterally benefited us by reducing the value of the Indian Rupee to more realistic levels. However, it still remains grossly overvalued; hurts exports at a time when overseas markets also face a slow-down and privileges imports over domestic manufacture – particularly in the low-value consumer durables produced by the small and medium sector. It is better to avoid a strong Rupee than to have to put up tariff walls to “protect” narrow domestic manufacturing interests, which risks degenerating into cronyism.
We were also shackled by relative flat-footedness with respect to proactive monetary policy in a low inflation environment – an economic environment unfamiliar to us.
The silver lining is that cleaning up financial and investment regulations can pull in Foreign Direct Investment on an unprecedented scale and import corporate governance on par with international standards.
FY 2019-20 has started badly with growth slipping to 5 per cent in the April to November quarter. More pain lies ahead. The question is on whom shall the burden of reduced public expenditure fall? Clear-headed and pragmatic budget reviews can improve fiscal re-allocation towards human development, social protection, basic infrastructure and external and domestic trade logistics.
In fiscal terms this means opening your purse selectively to expand rural employment and enhance rural (not just farmer) welfare through MNREGA; Direct Income Support and liberalising agricultural trade whilst continuing the existing support schemes (administered cereal procurement, subsidised fertiliser, cheap irrigation) till growth raises all boats.
Union government allocations for completing existing projects should be a privileged whilst slowing expenditure, in the short term, on integrating next-generation technology – solar power, electric vehicles, urban renewal, space capability, interlinking of rivers. These are plumbing tasks, which the bureaucracy excels at. A high-level committee of Secretaries can finesse the required expenditure rationalisations.
State governments would have to similarly cut expenditures since the volume of grants from the Union would reduce. There is limited scope for borrowing to spend. The FY2019-20 fiscal deficit (FD) target of 3.3 per cent is already challenging as is the net tax mobilisation target of a 20 per cent increase over the actuals for FY2018-19.
The FM has rolled back the recently introduced super-rich surcharge. Rationalised GST tariffs – particularly doing away with the exorbitant 28 per cent rate slab will benefit manufacturers and urban consumers. Further reduction in the interest rates for home and durable loans, cash credit and overdraft can expand demand for services, agricultural products and manufactured goods.
Reworking the budget framework is necessary. Higher growth with fiscal instability is not a choice. Fine-tuning the level of debt we can add beyond the FD target should be a collaborative effort across the Union government, state governments and the RBI. Pulling out “co-operative federalism” from the attic and putting it to work on tax rationalisation, land, labour and agricultural reforms might reverse the slide.

 

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Viewpoint: How serious is India's economic slowdown?
By Praveen Chakravarty Economist

Private sector investment is at a 15-year low
Top Indian government officials are engaged in a vociferous public debate over the state of the country's economy.
Rajiv Kumar, the head of the government's think tank Niti Aayog, recently claimed that the current slowdown was unprecedented in 70 years of independent India and called for immediate policy interventions in specific industries.
The Chief Economic Adviser, K Subramanian, disagreed with the idea of industry-specific incentives and argued for structural reforms in land and labour markets. Members of Prime Minister Narendra Modi's economic advisory council sound inchoate, resorting to social media and opinion editorials to counter one another.
In essence, the quibble among the members of the economic team of Mr Modi and his government is not about whether India is facing an economic slowdown or not, but about how grave the current economic crisis is.
This is a remarkable reversal in stance of the same group of economists who, until a few months ago, waxed eloquent about how India was the fastest growing economy in the world, generating seven million jobs a year.
To put all this in context, it was less than just two years ago, in November 2017, that the global ratings agency Moody's upgraded India's sovereign ratings - an independent assessment of the creditworthiness of a country - for the first time in 14 years.

Getty ImagesSales of cars and SUVs have slumped to a seven-year low
Justifying the upgrade, Moody's had then argued that the economy was undergoing dramatic "structural" reforms under Mr Modi.
In the two years since, Moody's has downgraded its 2019 GDP growth forecast for India thrice - from 7.5% to 7.4% to 6.8% to 6.2%.
The immediate questions that arise now are: is India's economic condition really that grim and, if yes, how did it deteriorate so rapidly?

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One of India's most celebrated entrepreneurs, the founder of the largest coffee store chain, Café Coffee Day, recently killed himself, ostensibly due to unmanageable debt, slowing growth and alleged harassment by tax authorities.
The auto industry is expected to shed close to a million direct and indirect jobsdue to a decline in vehicle sales. Sales growth of men's inner wear clothing, a key barometer of consumption popularised by former Federal Reserve Chair Alan Greenspan, is negative. Consumption demand that accounts for two-thirds of India's GDP is fast losing steam.
To make matters worse, Finance Minister Nirmala Sitharaman presented her first budget recently with some ominous tax proposals that threatened foreign capital flows and dented investor confidence. It sparked criticism and Ms Sitharaman was forced to roll back many of her proposals.

Getty ImagesIn 2016, India withdrew 85% of all currency notes from the economy
So, it is indeed true that India is facing a sharp economic downturn and severe loss of business confidence.
The alarm over the economic condition is not merely a reflection of a slowdown in GDP growth but also the poor quality of growth.
Private sector investment, the mainstay of sustainable growth in any economy, is at a 15-year low.
In other words, there is almost no investment in new projects by the private sector. The situation is so bad that many Indian industrialists have complained loudly about the state of the economy, the distrust of the government towards businesses and harassment by tax authorities.
But India's economic slowdown is neither sudden nor a surprise.
Behind the fawning headlines in the press over the past five years about the robustness of India's growth was a vulnerable economy, straddled with massive bad loans in the financial sector, disguised further by a macroeconomic bonanza from low global oil prices.
India's largest import is oil and the fortuitous decline in oil prices between 2014 and 2016 added a full percentage point to headline GDP growth, masking the real problems. Confusing luck with skill, the government was callous about fixing the choked financial system.
To make matters worse, Mr Modi embarked on a quixotic move in 2016 to withdraw all high-value banknotes from circulation overnight. This effectively removed 85% of all currency notes from the economy.

What is really happening with India's economy?
This move destroyed supply chains and impacted agriculture, construction and manufacturing that together account for three-quarters of all employment in the country.
Before the economy could recover from the currency ban shock, the government enacted a transition to a new indirect taxation system of the Goods and Services Tax (GST) in 2017. The GST rollout wasn't smooth and many small businesses initially struggled to understand it.
Such massive external shocks to the economy, coupled with a reversal in low oil prices, dealt the final blow to the economy. Millions of Indians started to lose their jobs and rural wages remained stagnant. This, in turn, impacted consumption, slowing down the economy sharply.
Not easy
The wobbly state of the economy has also thrown government finances in disarray: tax revenues are much below expectations.
On Monday, the government got a much-needed breather when India's central bank announced a $24bn (£19bn) one-time payout for the cash-starved government. (This amount is more than the dividend paid by the central bank to the government in all five years of the Congress rule between 2009 and 2014.)
The solutions to the economic crisis are not easy.
Indian industry, fed and fattened with government protection through decades, is once again clamouring for tax cuts and financial incentives.
But it is not clear that such benefits will revive private sector investment and domestic consumption immediately.
For all the hype about the Make in India programme, hailed as the harbinger of the country's emergence as a manufacturing power, India's dependence on China for goods has only doubled in the past five years.
India today imports from China the equivalent of 6,000 rupees ($83; £68) worth of goods for every Indian, which has doubled from 3,000 rupees in 2014.
India's exports have remained stuck at 2011 levels and not grown.
So, India is neither making goods for itself nor for the world.

AFPIndia's agrarian crisis is a major stumbling block
Ornamental tax and other fiscal incentives to specific industries are not suddenly going to make Indian manufacturers competitive and stop India's addiction for affordable Chinese goods. If any, the trade spat between China and the United States only saw countries such as Vietnam and Bangladesh benefit and not India.
More currency or trade tariffs are not the solutions either. The central bank has lowered interest rates and there is some push to lowering the cost of capital for industry. But again, Indian industry will invest more only when demand for goods and services increases. And demand will increase only when wages increase, or there is money in the hands of people.
So, the only immediate solution for India seems to be to boost consumption through a stimulus given directly to people, in the classical Keynesian mould.
Of course, such a stimulus should be combined with reforms to boost business morale and confidence.
In sum, India's economic picture is not pretty.
It is important for India's political leadership to see this not-so-pretty picture and not hide behind rose tinted glasses. Prime Minister Modi has a unique electoral mandate to embark on bold moves to truly transform the economy and pull India out of the woods.
Praveen Chakravarty is a political economist and a senior member of the Congress party