Monday, 25 June 2018

India has lot to worry – My Take on Indian Economy

During last one-year Brent Crude prices increased over 65%. Post US sanctions on Iran, state-of-affairs in India magnified. India being net oil importer, the bill has jumped over 25% in FY18, which is likely to continue in FY19 provided the price remains at the current levels but if the price increases from current levels, current account deficit (CAD) widens further, impacting fiscal spending. What does it mean for Indian economy? Funds earmarked for economic development will now be used for purchasing oil. In my view Government is unlikely to cut the excise duty on oil because every rupee cut means ~INR13,000crs loss to the government. Finance ministry did share India has accumulated unpaid oil bills worth INR 1.3lac crores b/w 2008-2014. Theoretically increase in CAD leads to depreciating currency, impacting fiscal spending, increase in headline inflation, cut in interest rate, fund outflow. Theory holds good at current scenario and we all witnessed rupee depreciating against major global currencies, RBI hiking Repo rate, raise in headline inflation & FIIs being net sellers in the market (post Fed hiking interest rate). Survey says every $10 pb raise in oil price result in 0.2 – 0.3 percentage reduction in GDP growth + increase in 1.7% WPI. In my view Inflation & MSP data will determine the RBI’s next move. Not to forget US trade war with major economies in the world and its challenges.
Despite the positive momentum in global economy India could not participate (poor exports) due various structural reforms in the country. I am not sure how far the demonetisation helped but certainly Digital payment benefited on a larger scale. GST, RERA, IBC, Recapitalisation of Banks has brought confidence and/will certainly yield benefits on a longer tenure. However, present woes will continue till 2019 General election. Issues such as Low Capex growth will continue, Industries are reluctant to add or expand but discovering ways to utilise the existing capacities more efficiently and effectively.
Growth has obviously done little to fire up the job market. About a million Indians reach the employment age every month. That is a daunting statistic. But the economy not been able to absorb more than 4mn of them in a year. Jobless growth has been the biggest threat to the economy and to the government.
Various reforms have been taken in the respective sectors. Bhratamela is one of the largest initiative taken by Transport ministry, but the issue continues be on the land acquisition. Mumbai Delhi Industrial Corridor Plan, Smart cities, Bullet trains, Virgin Hyperloop Pune project, PMAY to promote housing for all, Agricultural reforms, irrigation projects, start-up promotion, International trade relations. Banking reforms starting with setting up of separate MPC, IBC & NCLT to clean up NPAs. >2000 cases registered with NCLT till date but only 1/3rd of them are addressed. Banks provision 50% post NPA, NCLT delay will impact the capital adequacy ratio of banks creating further imbalance in the economy.
Conclusion -
1.   Increase in Oil price will add fuel to the economic crisis
2.   Economy with Jobless growth will not sustain. India “must do” lot more to create Job opportunities
3.   Let us not forget ‘NPA’ a white Elephant in the room
4.   Loan waiver is not a solution
5.   Policies are framed keeping Geo political issues in mind
6.   We have 29 countries in India. Therefore, without support from each state double digit growth will remain a distant dream

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