Tuesday, 13 November 2018
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It’s the Economy, Stupid

It’s the Economy, Stupid
19 Oct
2:04

The resignation of M J Akbar, minister of state for external affairs, from the NDA government on Wednesday, is a reputational crisis for the present regime in Delhi. It’s not so much that he quit — after all, under UPA-2, at least half-a-dozen mantris were forced out of office, including Dayanidhi Maran and Andimuthu Raja — but why Akbar had to go: facing accusations of sexual harassment from at least a score of women journalists.

Added to this woe, economic indicators — especially markets that try to sniff out trends ahead of anything else — are sagging. The NDA government, which BJP president Amit Shah recently claimed would govern ‘for 50 years’, looks very vulnerable.

Blue Chips are Down

So far in October, foreign portfolio investors have sucked out nearly Rs 19,000 crore from India, double the Rs 9,450 crore they had taken out in the whole of September, and nine times what they had taken out in August. In six months, blue chips are down more than 10 per cent from peak.

There are good reasons for this. For example, a survey of the annual results of about a tenth of listed companies shows net profits down by a staggering 30 per cent. This has been recently published by the respected Centre for Monitoring Indian Economy (CMIE).

On October 11, Credit Suisse (CS) published a report that said from 16 per cent in 2014, the growth of overall lending is reckoned to fall to 10 per cent in 2018-19. CS adds that the worst hit will be non-banking financial companies (NBFCs), which have huge repayments coming up in two months. The likely failure to do that will impact already-limping bank finances. Banks and non-bank lenders loaded with bad debt, have become extremely risk averse. Lower lending equals diminished spending and investing power.

Unsurprisingly, CMIE shows a dramatic fall in investments. In the September 2018 quarter, the value of ‘new’ projects at Rs 15.8 lakh crore was the lowest in four quarters. The value of completed projects was similarly the lowest in four quarters. The value of stalled and ‘implementation stalled’ projects, taken together, was Rs 10.1 lakh crore, 35 per cent more than the value of completed projects.

And here’s the catch. Almost all the new promised investment is from a single project: a giant Rs 30,000 crore, five-million-tonne-per-year capacity steel plant by one company in Visakhapatnam. WhyRs Nearly 23 million tonnes of existing steel projects are rusting bankrupt and can be purchased at bargain basement prices.

The solution to this paradox is simple. The Rs 30,000 crore investor is a government-owned entity, Rashtriya Ispat Nigam Ltd (RINL). If this investment does indeed take place, RINL is certain to go bankrupt, given the glut of steel capacity in the market and the apparent lack of demand.

The impact of this slowdown in growth is evident everywhere. Under the new series, base 2011-12, government data showed 10-year average growth during UPA at 8.1 per cent per year, versus NDA’s four-year average at 7.3 per cent per annum. On Monday, the International Monetary Fund (IMF) forecast India will grow 7.3 per cent in 2018 and 7.5 per cent next year.

Obviously, jobs aren’t being created for India’s aspirational young as fast as they should. India lacks reliable employment data because around 85 per cent of its working population is unorganised. However, the CMIE makes a rough calculation — month on month by taking the number of people entering the workforce minus the number who get employment as measured by the Labour Bureau’s quick estimates — as the unemployment figure.

Evaporating Jobs

This shows joblessness rising steadily from 3 per cent of the potential workforce on July 30, 2017, to 8 per cent on September 23, 2018. This is a 167 per cent increase in joblessness — in just 14 months.

The political impact of all this can be disastrous. The effect of frustration among thwarted folks, cutting across class and caste lines, can already be seen rolling across India, from Maharashtra in the west to Bihar in the east.

Maharashtra, India’s most prosperous state, is in turmoil. Who could have expected to see giant red flag rallies choking Mumbai, India’s financial hubRs Earlier this month, civic services and schools in Delhi shut down as 25,000 agitating farmers dug in at the Ghaziabad border with Uttar Pradesh.

In parts of Rajasthan, stone pelting and violence led to curfew being imposed and internet services cut off in August. Violence erupted in relatively prosperous Jaipur and farmers are agitating in Shekhawati. Government employees went on strike recently.

Madhya Pradesh is no different. In summer, farmers in the state, perhaps inspired by their brethren in nearby Maharashtra, launched massive strikes. On October 16, Jats in the state launched a widespread protest movement.

For the Modi administration, the immediate migraine should be Rajasthan and Madhya Pradesh, two of five states that go to polls next month. The BJP, incumbent in both, should be very, very worried.

Source: https://economictimes.indiatimes.com/markets/stocks/news/its-the-economy-stupid/articleshow/66281627.cms

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