Only time will tell if the measures taken by the FInance Minister of India will suffice to curb the Recession or not
The bad news is that Indian economy is doldrums for quite some time. The good news is that North Block has belatedly managed to recognize the slowdown and decided that it’s time to act.
However, the vehement denial for the underlying reasons of slowdown, there is complete absence of any coordinated or comprehensive plan.
We are not going to talk about when it started to go wrong or why, rather what is wrong as of now. Its lack of spending and delay in commitment on part of government.
Come to think of it Finance Minister, on Friday offered all pending GST refund due to MSMEs to be paid within 30 days totaling close to 5000 Crores. That was the money, Government should have had paid earlier and now it is doling out ‘right’ as a ‘charity’.
The biggest problem is liquidity in system which is arising from two fronts
- Lack of spending by government. And we are not just talking about new projects just the relase of pending payments by likes of NHAI and MES can go a long way
- Injection of liquidity into banks
Giving loans is business of Banks. Some of those loans have gone bad. Most of these Banks are controlled by Government. So who bears the responsibility of bailing the banks out?
It should be government.
So against a bad debt of 2.4 Trillion Rupees government is going to inject 700 Billion rupees into banking sector. And it needs assurance that this money will be put into profitable ventures.
Even angel funds take better investment risks than Ministry of Finance, Government of India. Through its bad decision making it has got banks to face some of these bad debts in the first place. Its recurring bail out Air India destroyed Kingfisher and Jet Airways. The policy flip flops on renewable energy destroyed Suzlon. The entire NBFC sector never recovered from the demon of demonetization.
The need of the day
It is to inject immediate liquidity into industries. As long as bankers are not prosecuted for bad loans the flow can start back. Spending on Bharatmala can be a good start. Ensure NHAI or any other nodal agency pays a little before due date. Give confidence to banks that such projects are viable and loans can be given.
Then there are opportunities in Auto, textiles and electronics. With China feeling the pressure of Trump’s ire, till date India has not tried to fill in the vaccum. (Vietnam has benefitted the most but then that is a different story).
The dark clouds are already here, we can either find shelter in some case or sow some paddy. The choice is with Nirmala Sitharaman to take out the next rabbit from her hat and make it run!
