Resurgent India Knowledge Series Presents
Webinar On Indian Economy-The Road Map to Success
Speakers- Mr. HR Khan, Ex.Deputy Governor, RBI
Speakers- Mr. Niranjan Hiranandani, Co-founder & MD-Hiranandani Group, President- NAREDCO & ASSOCHAM
Speakers- Mr. Kishor Kharat, Former MD & CEO- IDBI & Indian Bank
Moderated By- Mr. Jyoti Prakash Gadia, MD-Resurgent India Limited
● India’s growth in the second quarter of last year started at 6.2% but gradually plummeted down. So to begin with the economy was already tense. The global health crisis hit the recent quarters more and the IMF projection of 1.9% GDP for next year will depend on how the nation reacts after the lockdown is lifted and the size of green zones and orange zones.
Strength of Indian Economy
● Adequate foreign exchange reserves of 480 billion which was covering almost 12 months of imports. We have a huge food reserve, 3x more than we required.
● The inflation trajectory was showing some progress. Despite the slowed economy, agriculture was expected to perform well and still is.
● Foreign exchange reserves are used for 3I’s
● A serious problem of fiscal consolidation. In addition, the financial infrastructure of the country was hounded with a host of banking issues like low and anemic growth, asset quality, corporate governance issues, etc
● Even though with an indication of development in agriculture, the rural side is still stressed because of disparity in the distribution of wealth. Consumers in urban areas pay 4, but the farmer gets only 1.
● We also were suffering from the range of health and skills issues
● The opportunity of replacing China and the prices of oil, which in some countries is cheaper than water. A huge success in terms of turning India a digital economy including digital payments
● Situation not improving from the current state, and is a real threat as of now. Economists are predicting a recession bigger than the ‘Great Depression of the 1930s’.
● Even though India is majorly a domestic economy, the threat of global recession hitting us is not negligible because of exports; contributing about 20% of the total economy.
● The social, political and cultural dynamics are in a jiffy which results in the unfavorable press of India, outside the country
● India already had projected around 3.5% GFD (8 Trn) but due to fall in the growth, no disinvestment, and stimulus packages being announced, the GFD will increase to 5.5%. In addition, 3% of state GFD and extra-budgetary resources will increase the total GFD to 9.5%. The government still has to provide a stimulus of at least 2-3% (6 trn), ultimately grand totaling it to 12.5%. There are a host of measures that the government can resort to in order to fund the 6 Trn stimulus including issuing tax-free bonds, domestically and overseas, short-term papers, etc Governments have to think innovatively how to finance 3% GFD.
Future- Path for recovery
● The ways we can position ourselves against the global antipathy towards China. Targeting to make noteworthy contributions towards the ‘Make in India’ initiative which has barely seen any movement since its inception. Manufacturing which was supposed to be 25% is stagnating at 16%
● The escalation in multiple dimensions of Infrastructure i.e Physical Infra, Legal Infra, Financial Infra, Administrative Infra, Policy Infra. Build up-skill, health, and education. Leverage ‘Swachh Bharat’ and agriculture positively.
● The future also may include a lot of decentralization of activities. Reduce concentrated activities in big cities. Management of migrants and prepare for decreased labor-intensive techniques with ‘social distancing’ being the new norm. The focus will be shifted on automation which will impact employment. So the government will have to manage the distribution of wealth and time for universal basic income has come.
The shape of stimulus package
● War-footing efforts have to be made on health infrastructure and ramp-up our production in medical equipment and testing kits in order to reduce the rate until it starts flattening.
● Tackle the issue of livelihood.
● Support to stressed sectors
● Reduced labor-oriented activities will have dire implications. Unavoidable % of the workforce of the country is engaged in labor-intensive industries.
● 80% of the workforce is below the age of 40. Actions have to be initiated in order to get them at work in areas that are not red zones to avoid any deeper damage.
● The discussion should now be moved from the stimulus package that is inherent to what’s remaining to be done in order to stimulate the economy. Different numbers are floated in the market. But Mr. Amitabh Kant, who heads ‘Niti Ayog’ gave the figure of 10 lakh crores of rupees of additional stimulus is required. As per their calculations, 0.7 lakh crore has been distributed as a stimulus package leaving the balance of 9.3 lakh crores to be floated in more.
● The spread of rent yield of 1.5% and the cost of borrowing of 8-8.5% will reduce as more and more young working generation is attracted to rental housing. Also, because of security issues and WFH culture, the demand for residential houses will also surge. The preference of more space in residential houses will also see a demand if it’s a man and woman, both are working in a household.
● Around 2-3 lakh crore of state, center, and PSUs are due in the form of GST refunds, NHAI payments, Income tax refunds, fertilizer subsidiaries, SGST balance payments, and PSU payments, are funds that the government can release, to start with.
● 50% GST cut for the next 3-4 months to stimulate demand across the board.
● Representations have been made to kick-start the SME sector, 75% of which are struggling with liquidity issues, by extending borrowing facilities specific to the sector.
● The government can also scheme to extend credit guarantees to the borrowers so that lending institutions are less reluctant to lend at these uncertain times. This can help boost the bank's frequency to lend at this time.
● Governments together with regulators need to step in at this time to push the capital to kick-start the economy. The authorities have to collectively come to an agreed solution in order to save the economy from sinking any further.
● The lenders cannot be hung up on the experiences of the past. Professionals should formulate and derive appropriate solutions to counter and rectify the errors made and provide the assistance of capital to the economy that is the need of an hour.
● Swift, informed financial decisions have to be taken up by the authorities to triumph over this crisis.
● During 2015-16, when RBI started reviewing asset quality in order to address and identify the stress in the banking sector, it led to a cropping up of NPAs in huge numbers. This situation sickened the banking sector’s health and lost the ability to finance and reduced confidence of the bankers in lending investment-grade companies because of the inadvertent fear.
● Due to the increase in the risk of corporate accounts, banks turned their focus on lending to MSMEs, agriculture, and retail.
● In order to successfully channelize liquidity lying with the banks into lending, the confidence of the bankers needs to be brought back which is bogged down by the looming fear of accountability if the account turns NPA.
● Special dispensation has to be given to the areas specifically set back due to this pandemic which will improve the confidence in the lenders’ community.
►Watch the webinar here: https://www.youtube.com/watch?v=9XwLwylrddc