IS MY INDIA’S ECONOMY SLOWED DOWN?

In the midst of hue and cries of Anti-National Brigades with Pakistan and its sponsored Islamic Terrorist Organisations there is another propaganda usurped. Many are showing concerns about the Economy of My Country India. It is Good Sign not to remain indolent to National affairs.

BUT

Are these Concerns really alarming? Are these Concerns are Real or mere propaganda to weaken faith on Indian Government? Those who paying concerns are really trustworthy?

Though this Subject needs a detailed presentation and not possible to place all the things in this post, although I will try to make you understand the whole thing with key points.

First, be clear that the whole world is reeling under economic slowdown. Since 1993, the global economic slowdown is coming on regular intervals of 3 to 5 years. Last time we have experienced it 2009-2013, and now since 2018. The Global demand of Steel, Coal etc are declining, the production of Vehicular manufacturing is going down. So it is obvious that Hindustan’s Economy has under similar pressure.  Besides this, every economic slowdown is followed by a debt crisis. It is a simple formula, whenever someone faces a financial problem he lends Money from external sources, and before repayment, if the financial crisis returns the Debt also increases. The Debt Crisis is a Global phenomenon, from very rich to Poor Country reeling under a similar situation; Hindustan is not only a Single Country which faces economic slowdown and debt crisis.

Now come to Debt situation of Hindustan in correspondence to other world countries,  according to BIS, the Global Debt was accounted 71% of GDP in 2008, which was increased to 114% in 2016. The main cause of the increase of the Govt Borrowing is increasing credit finance non-financial sectors. China’s total debt is 5.1 trillion US dollar, which is 45.45% of the country’s total GDP. Whereas China’s Inflation stands as 6.8%. Similarly, America’s total debt is 21 trillion US Dollar, which is 107.09% of the Country’s GDP but the Inflation remained low to 2%. Brazil’s total debt stands as on today is 1.57 trillion US dollar, which is 77.40% of the GDP, whereas Inflation is 2.86%. Canada’s Total Debt is 898 billion US dollar, which is 60.10% of the GDP and Inflation is 2.2%. Hindustan’s Total Debt stands as on today is 1.01 trillion US Dollar, which is 44.82% of the Total GDP and Country’s Inflation is 4.87%.

Some of the Social Media Posts criticizing the Indian Government for the slowing down of the manufacturing sector. They might forget that the demand for manufacturing goods change every century and the time interval. In 1784 during the 1^st industrial revolution the Demand was mechanization, Steam Power and weaving (Power) looms, 2^nd Industrial revolution during 1870 the demand was Mass production units, assembly line and Electric energy, the 3^rd Industrial revolution (1969) was Automation Computers and Electronic goods, the Present Industrial revolution is Cyber-Physical systems, Internet of things, networks. United Nations Industrial Development Organization report (Industrial Statistics 2019) says, “World manufacturing value-added rose by 3.6% in 2018, slightly lower than the 3.8% recorded in the previous year. The slowdown is mainly attributed to the emerging trade and tariff barriers involving the USA and China, as well as the USA and the European Union, which is exposed markets to a significant amount of uncertainty.”

I again reiterate, don’t listen to these SECULO-LIBERANU LEFT CONGI BRIGADES’s PROPAGANDA as they are far from the reality and living in a world of own. India’s Future lies its Software and Cyber technology, Chandrayan is a major step. Every Indian should Think India that is Bharat or Hindustan Is their Country and will contribute their best for its development. The most important thing they can do is to upgrade their skills, Materialise their Novel Ideas. Without NATIONALISM and LOVE FOR MOTHER NATION this never can be achieved.

Vande Mataram

Jai Hind

DO YOU NEED UNEMPLOYMENT???

Employment is a situation which is born with the Industrial Revolution and brought up by Economic Liberalisation and Capitalism. So, Employment, Unemployment and Underemployment need a three-way explanation (a) Psychologically (b) Economically (c) Sociologically. 

Among all the explanations, Economic explanation is itself a self-explanatory to the raising issues of employment. The Economic definition of Employment is “Individual income derived from work and in turn, it affects the productivity of the Society or a Nation” So, Skills, Health, Education, Intelligence all are necessary components of an Individual’s Productivity component. 

Similarly, Psychological Explanation stress upon the willingness to work. Alber Lauterbach In his article published in American Journal says, “at any rate the “Wish to work” as a felt need that transcends the requirement of having a source of income is rather widespread and represents the striving for a social function and a feeling of being useful to others.” This explanation surely implies the need of strong Nationalism feeling. 

The Three Major sectors, where one can get employment are; (a) Agriculture (b) Industry (c) Service. 

Employment is divided into two major categories a. Self-employed and (b) employed by a firm, organisation, person etc. Again it is classified by the type of employment as (a) temporary worker (b) part-time worker (c) Permanent Worker. 

Under the Industrial Disputes Act, employees working in a managerial or administrative capacity, or those employed in a supervisory capacity earning more than Rs 10,000 per month, are excluded from the scope of this definition. 

Under the Industrial Employment (Standing Orders) Act 1946 classify workmen according to the nature of the employment as (a) permanent, (b) Probationers, (c) Badli or casual, (d) Temporary 

The hue and cries on Present Unemployment are more political and less practical, Why?

First understand few things pointwise; (1) Shrinking Agriculture land thus increase of Temporary Labour force (2) Growing automation means minimize the use of Manual Labour Force, as most of the industries using contractual or probation labour force, so there is increase in unemployment (3) Lack of Skills/ Education also contribute the growth of unemployment of unskilled labour force (4) The participation of workforce of Muslim Population is much lower than the other religious population (5) the lowering participation of women folks also contributes overall downfall of work productivity of Hindustan. 

The CIME says the present unemployment rate for July 2019 is 7.6%. It also says the growing unemployment is due to the downfall of the automobile industry. The Downfall of Diesel/Petrol based automobile is a global phenomenon, even many countries discouraging the growth of carbon-emitting automobiles. According to the Data from the Ministry of Labour and Employment, the State-wise unemployment rate for persons aged 15yrs and above on usual status basis during 2012-13 to 2015-16, Hindustan’s unemployment rate is 4% (2012-13), 3.4 (2013-14) & 3.7 (2015-16). The International Labour Organisation says, actually there is more unemployment in 15 to 24 years age group but the unemployment percentage of above 25+ yrs age remained almost the same since 2012. 😆

Besides this, the increase of unemployment is an indirect consequence of General Election, as most of the government investment has been stalled due to Budgeting of Government Investments. 

Similarly, the NDA II passed the Minimum Wages Act to ensure minimum wages will sure change the employment/Unemployment scenario of Future India. 

👉My answer to the present unemployment scene is temporary and will wither out within one and two months.

You can read further analysis on unemployment at my blog ;🧐 👉

https://lambodarprasaddash.blogspot.com/…/unemployment-in-i…

And👉 My HUMBLE REQUEST DEVELOPE THE FEELING OF NATIONALITY AND INCREASE YOUR SKILLS, POSITIVE APPROACH & PRODUCTIVITY and ESPECIALLY DON’T FALL PREY TO THESE SECULAR, LIBERAL, LEFT and CONGI BRIGADES' PROPAGANDA. 

Jai Hind

VandeMataram

Unemployment in India: Truth Vs Reality

Different groups of the non-employed have vastly different likelihood of transitioning into employment. For example, people who want jobs have 13-14.5% probability of employment, while retired or disabled individuals have less than 2% probability of becoming employed. The unemployed are also a heterogeneous group. The short-term unemployed are twice as likely to enter the workforce as the long-term unemployed, who in turn are twice as likely as people who are out of the labour force but want a job.

(MARIANNA KUDLYAK, "Measuring Labor Utilization: The Non-Employment Index", FRBSF Economic Letter, March 27, 2017)

Lambodar Prasad Dash

Before 2019 general election, Opposition Parties vehemently attacked Narendra Modi led NDA-2 Govt for failing to provide jobs as Modi himself promised it during 2014 election campaigns. Modi in a Political rally in UP on 23, Nov 2013 said 65% of the Indian population is below 35 years age and they are struggling under “unemployment”. UPA failed to provide Jobs to educated Youths despite its promise in 2009 elections, if BJP came to power it will provide 1 crore Jobs. The whole accusations and counter-accusations seem to be like causality dilemma of Egg or Chicken.

What is present India reeling under, Unemployment or Un Employment? Before answering the question lets analyse some historical facts and data;

Unemployment or joblessness is the state of being without any work yet looking for work. It is also a key economic indicator which describes the ability/inability of workers to readily obtain gainful work to contribute productive output of the economy. In simple terms less works means less total economic production and high rate of labour participation means high economic production. However, the low rate of unemployment is not at all a good sign of economics as it implies overheating the economy, inflationary pressure and tight condition for business. So we need to contain unemployment ratio at a balanced rate. Economists divide unemployment into 4 major types; Cyclical, Structural, Classical or institutional and Frictional or transitional.

Unemployment Trend, Table-1

Cyclical as the word itself implies it is temporary in nature and directly linked to economic boom and recession. Structural is linked with technological change; the rate of automation determines the use of manual labour. Institutional is the most negative type of unemployment, as it is a consequence of long term government policies like populist, generous social benefits programs, high rate of unionization, Restrictive occupational licensing laws. Another type of unemployment is Hidden Unemployment or underemployment or disguised unemployment. This type of unemployment is a by-product when the agrarian economy shifts to Industry or service. People of this type of category generally not willing to work or their overall productivity has so meagre that can’t influence economic growth.

Unemployment Trend sector wise, Table-2

Now analyse the data related to employment and unemployment in India (See Tables 1 to 5). The unemployment rate is equal to the total unemployed workers divided by total labour force multiplied by 100. According to the CMIE on 31 May 2019 (30-day moving average) the unemployment rate in India is 7.1%, (See Table-7)in Urban areas it is 8.6% and in rural areas, it is 6.5%. The April 2019 unemploymentdata of states shows Haryana which is mostly an agrarian state which is under transition towards rapid urbanisation and industrialisation, having highest unemployment rate i.e. 26.4 followed by Tripura (25.4%) which is one of the most literate states having 87.7% literate rate. The state’s GDP primarily depends on the service sector (53.98%), Agriculture & allied (23.07%), Industry (22.95%). Out of the total dependants in the secondary sector, 28.21%

Table-7

depends upon the retail sector. In the unemployment list 3^rd state with the highest unemployment

Unemployment Trend age-wise, Table-3

rate in Himachal Pradesh (19.6%) followed by Bihar and Jharkhand (12.2%), Uttar Pradesh (11.1%), Jammu Kashmir (10.6%), and states having lowest unemployment rate is Puduchery (0.4%), Karnataka (0.5%) Tamil Nadu (1.2%), Meghalaya (2.3%), Telengana (2.7%), Gujarat (3%), Chhattisgarh (3.4%).  Almost 15 states falls below and 11 states are above the national average unemployment rate.

If we look at the annual average rate of unemployment, it is not so worrying. The unemployment data of the CEIC on India shows that since Dec 2007 the unemployment rate is not crossed more than 3 percent. It was highest in 2013 (2.823) and Lowest was in 2008(2.268) and in 2018 it is 2.551. Even the data of the International Labour Organisation (ILO) shows that the unemployment rate of India is 2.6%.  CEIC data shows that the Labour Force Participation Rate (LFPR) has been decreasing since 1990. In 1990, the LFPR is 58.6%, and in 20

Unemployment Trend years-wise, Table-4

17 it is 52% and in 2018 it further decreased to 51.9%. There is some peculiarity in the Labour Force Participation Rate, Unemployment and GDP, in most of The developed countries LFPR is increasing but correspondingly GDP and unemployment rises but in the context of India LFPR and unemployment is decreasing but has good GDP growth.

The “peculiarity” trend is directly linked to the increase of Skills of the workforce, In 2002 the labour productivity was 1.32% and in 2017 it was 4.82% and the figure for the current year is 5.80%.

Unemployment Trend, year-wise, Table-5

Now, look at the macroeconomic state of the India the Mining industry is increasing. The production and export of Coal, Aluminium, Gold, ICT goods are increased in recent years but there is a decrease in Telecommunication equipment, Medicinal and Pharmaceutical products. The RBI data shows that nations composite index for Infrastructure industry grew from 3.8% (2012-2013) to 4.3%(2017-18) in the base year of 2011-12. Similarly, if we look at the data of Industrial production it shows a positive trend. The Industrial production index of the Primary goods, Capital Goods, Intermediate goods, Construction goods, Consumer Durables, and Consumer non-durables for the March 2019 has an upward grid. The deposits of all Scheduled Commercial Banks for the 4^th quarter of the current years also show an affirmative movement.

Here, I feel it is necessary to present one of the critical observations by the “India WageReport-2018” (ILO) as it directly linked to the Unemployment issue. The report says, “Union density among salaried workers has fallen precipitously since 1993-94, by 17.7 percentage points to 28.8 percent, while it has increased for casual workers and among self-employed workers. There have been some attempts at unionizing worker in the informal economy, especially among home-based workers either to negotiate for minimum wages or to demand for better conditions (Brick Workers)...India was one of the first developing countries to introduce a minimum wage policy...despite this wage floor being non-binding, one estimate shows that in 2009-10, about 15 percent of salaried workers and 41 percent of casual workers (i.e. 62 million workers) were paid less than the indicative minimum wage and the rate of low pay was higher among women than men.”

From the above analysis, we can draw a few vital points which automatically speak the present “Employment” situation in India and these are as follows;

(a)    There is a decline in the labour force participation but growth in labour Productivity; it means the quality of labour is increasing and the quantity of labour force decreasing.

(b)    Unemployment in India is not as murkier, at least at this present situation as hyped by some intellectual & political quarters.

As we have discussed earlier that Government’s Populist or generous social welfare Schemes impinge on the upward growth of the unemployment. “The planning commission revealed in a remained constant in number at 55 million (poor) in the past 20 years despite high growth and high investment in IRDP and wage giving programs...The central and state governments together spend roughly Rs 42,000 crore a year on poverty alleviation programmes. in a sense, if the five crore odd poor families in the country were to be sent money orders, each would get more than Rs 8000 per annum, lifting them out of the poverty trench. Clearly, re-initiation of the mai-baap sarkar is not the answer.”( Excerpt from Anarticle in India Today on Union Budget 2004 by Shankar Aiyar and Rohit Sen)

The Government expenditure on populist programs increasing steadily since 1999-2000 and no government is thinking of a reformation which can bring long term and yielding benefit in terms of employment generation. Even Modi’s NDA-2 Govt(20014-2019) is not an exception to it, it also embraced the populist programs of the UPA-1 & 2 (2004-2014). “For instance, 61.4% of all capital expenditure outlined in the 2018-19 budget is slated to be financed through EBR, up from 54% in 2016-17. Similarly, while the budget made tall announcements related to spending on agriculture and rural livelihoods, the fine print shows that 84% of all such spending is slated to be financed outside the budget, with the biggest component being providing agriculture credit(See Table-6).” (Govt spending before Lok Sabha elections: What data Shows, Nikita Kwatra)

Table-6

Even after such robust spending on populist programs the poverty or unemployment not reduced desirably. “However, estimates of the planning commission show that in the period soon after the implementation of the economic reforms, from 1993-94 to 2004-05, despite high economic growth poverty declined by only 0.74 percentage points per annum...this led to the implementation of some right based developmental initiatives as part of the minimum needs programme such as MGNERGA-2005, UWSSA-2008, RSBY-2008, NFSA-2013, as a result, in the latter period i.e from 2004-05 to 2011-12, poverty declined by 2.2 percentage points per annum ” (IWR-2019, ILO). The World Bank data on India’s Poverty says, “in 2011, we estimate that 14% of the population (or some 306 million people) lived between 1.50 to 1.90 dollar a day ...now the number reduced to 70million (2018)” (See Table-8)

But ironically the unemployment rate increased more than the previous years i.e. 1993-2005. The current situation of Unemployment is directly proportional to the poverty alleviation and Socio-economic upliftment rate. India has meticulously escaped the 2008 global economic slowdown and put nation’s economic growth on a fast track since 2008-09 but the unemployment rate also increased. Some of the salient features of the current labour economic the situation of India are as follows;

Poverty Rate year-wise, Table-8

(a) The decline of the labour force is a regular phenomenon since 2011-12

 (b) There is an increase of labour force in the service sector

(b) Labour Force decreasing in agriculture and Industry sector

(c) The labour force participation rate of 15-29 age groups is than the 30-59 age groups

(d) The unemployment rate among the 15-29 age groups is higher than the 30-59 (e) unemployment rate is higher in urban than rural India.

As we have talked earlier that unemployment is also transitional and seasonal. During April to June, we can observe more unemployment in rural areas which is more related to agrarian and allied works.

The OECD data shows that the annual working hours per worker in India is 1710 hours. In USA it is 1780 hours/annum, for OECD countries it is 1746hrs/annum. Greece, Russia, Mexico, Korea, Costa Rica has more than 2000hr/annum per worker and Germany, Denmark, Norway and Netherland has the lowest working hours per annum per worker (below 1433hrs).

Similarly, the work participation rate religious faith wise data (TOI) shows that The average the work participation rate for India is 40%. Muslims have the lowest work participation rate i.e 33% whereas it is 41% for Hindus, Jains and Sikhs it is 36% each, Buddhists having a highest working population (43%) and these figures not much changed in a census decade (2001-2011)

If you see the Caste composition trends (between 2004-2015) of the principal sectors of the Indian Economy (State of Working India, 2018) you can see, SC population switching their jobs from Mining and construction to agriculture, manufacturing, whereas ST population migrating from agriculture to Mining, Manufacturing, construction and Services (Mining and Service has the highest). Similarly, other castes left service and manufacturing sector where they are dominating in 2004 and taking sides of the Agriculture and Mining sectors. However, the OBCs are most distress caste in relation to Jobs. In every principal sector their participation rate decreases. Means most OBCs left their jobs and became Hidden employment or people who are not willing to work.

In this juncture, the hue and cry for the increase in the unemployment rate is middle-of-the-road propaganda.  EdmundS. Phelps, a noble laureate in economic Science in 2006 put the healthy the unemployment rate for a country is between 3 to 7 percentage ratio. If The government will succumb to the furore, it will force to shift its concentration from Poverty alleviation and social welfare schemes, which will jeopardize the healthy economic growth and the whole thing will be like “For want of a nail the Shoe is Lost, for want of a shoe the horse is lost, for want of a horse the rider is lost”. So, My advice to the Government is to focus more on Labour Productivity and participation rate, to build Healthy working environment, Healthy working Population; Govt should bring out such plans where Women will participate in more productive works; Government should create such a working environment where we can retain more productive brains from going abroad. As “another simple way to define economic growth is as the sum of the hours that people work plus their output per hour or productivity...has had an average annual growth rate of about 3.5%, half of it came from population growth, more specifically labour force growth or more people working more hours” (The rise and fall of Nations, Ruchir Sharma, Page 18 & 19). Before concluding my Discussion I reiterate, “Deal gently with the bird you mean to catch”.

Vande Mataram

Recapitalization for the ship has sailed

Lambodar Prasad Dash

Since Demonetisation, Modi government has undertaken series of reformative steps, which the government termed as “Structural change” in the Indian Economy, however, remain (until now) evasive on the wound it caused to the economy.

On 24^th October, Finance Minister Arun Jaitley’s announced to infuse 2.11lakh crore into Public Sector Banks (PSBs) through Recapitalization and 7lakh crore investments on Mega Infrastructure projects. During this announcement, he said this move is unprecedented.  The announcement is indicating two issues; First, Modi Government finally though not in words but in action agreed that there exist a serious financial crisis, which needs huge and urgent financial liquidity push amounting to around 10lakh crore and secondly, Government’s reservation on the disclosure of Issuance and type of bonds implies, it is still unconfident whether this move gives positive result.

By the by, our discussion is neither on how the recapitalization works nor to re-present the statements which were equivocally hyped by the government. Before elaborating my point, as a citizen of India I only can expect that Modi Government’s another “unprecedented” move might bring a positive consequence, unlike previous restructurings. The fiscal infusion into the PSBs and investment on infrastructure is recommended step for countering economic slowdown, but under certain circumstances and for a certain objective.

Before thrash out where Modi Government has done its estimation wrong or say more precisely, shifted its priorities for political image building, I would like to quote C. Rangarajan who worked shoulder to shoulder with Dr. Manmohan Singh as RBI chief, “structural reforms could not be introduced unless a degree of stabilization was achieved. On the other hand, stabilization by itself would not be adequate to prevent the recurrence of a similar crisis in the future. (Reforms 2020, Last 20 Years, Next 20 Years)

In the year 2014-15 when Narendra Modi took oath as Prime Minister of India, the economy was not vibrant like 2004-2010, nevertheless a mixed situation. Industrial growth was 4.8% (reviving since 2011-12), service sector growth was 1.8% lowest in the last decade (except 2012-13, 2013-14), and Agriculture growth was also lowest (4.6%) inflation and CPI was lowest in the last 5 years, export was high (323.4 billion USD), capital formation was moderate (36%). The gross fiscal deficit was 4.09% and revenue deficit was 2.89% of the total Gross Domestic Product (GDP). Public consumption was high (7% of the GDP) than the private consumption (4.5% of GDP), mean manufacturing sector had depended more on government. One deciding factor was, people had lots of liquid cash on hand to invest, but lion's share was invested on Real Estate and Bullions.

It would be a mature step for the Modi Government to choose and address technically some of the key issues from a number of concerns like unemployment, fiscal deficit, trade deficit, reviving sick PSBs, boost to manufacturing and agriculture sector. Instead of doing this government undertook several measures simultaneously. Modi government had preferred the revival of sick PSBs and sticking to fiscal consolidation. In the process, it had called for minimum government, maximum governance. To compensate the spending on manufacture and infrastructure it supportively allowed FDI through “Make in India” scheme. But till 2016 end, government for some mysterious reason failed to take a time-bound appropriate step to resolve the issues. Subsequently, this worsened the situation of the ailing sectors. The exasperated Modi Government had chosen a shortcut way i.e. “Demonetisation”. The aftermath situation can be rightly described by a quote of Gary Busey, “If you take shortcuts, you get cut short.”

In the year 2014-15, the total notes in circulation were 14483.12INR Billion and the notes held in banks was 621.31INR Billion and the Statutory Liquidity Ratio (SLR) was 22.50%. Just before the Demonetisation the total money in circulation “unprecedentedly” increased to 16634.63 INR Billion and notes held in banking department was 662.09INR Billion as per the Statutory Liquidity Ratio adjusted to 20.75%. Repo Rate (6.25%) and reverse Repo (5.75%) Rate was also an all-time low. It seems that Government itself allowed people to take more credit from the Banks. In such situation, It seems highly suspicious that why Modi Government all of sudden increased the Notes in Circulation and overnight demonetised them. By the by demonetisation only did one thing it increased the currency availability in the banks considerably.

On 26^th October 2017, Arundhati Bhattacharya, the former head of State Bank of India (SBI) India’s largest PSB said in a media event that If they prepare extra for anything, then its fruit or result was better. Obviously, if there was more preparation (for demonetisation), then definitely it would have been less strenuous on us.

When the whole Economy was yet to heal from the onslaught of demonetisation, Modi government has pushed another ambitious reformation, Goods and Service Tax (GST) with a mid-night celebration in Parliament house. GST, which Narendra Modi, PM of India termed as Good and Simple Tax made such a mess that GST council made more than 7 amendments including tax structures within four months since its implementation on 1^st July 2017. The government, as usual practice, hide the weaknesses but puffed that the first quarter since the roll out the Indirect tax collection rose than the previous years. However, in reality, it deliberately concealed the amount to be returned as input credit. An Independent estimation revealed that there are more than 20million job loss and more than 20 thousand small and medium industries closed down after the twin blow of demonetisation and GST.

Let’s have a look at the data provided by the RBI in his Handbook-2017, in 2016-17 financial years, Gross bank credit outstanding with Agriculture and allied sector is 9923.87INR Billion, MSME (26800INR Billion), Retail trade (2346.87INR Billion). Many sectors (except manufacturing 2014-15 3800INR Billion, 2015-16 3714 INR Billion and 3697 INR Billion) has taken new credit to start or boost their business before the GST rollout. Similarly, except Chemicals and Chemical products, Basic Metal and metal products, Rubber, Plastic & their products, and Leather and leather products, credit inflow to all other industry sectors have been decreasing since 2013-14. A government should be more cautious while bringing out any painstaking financial reforms when only a few sectors are optimistic in their business. Instead of widening the positive outlook it allowed to do more economic as well as policy blunders. For example, the BJP and its rightwing Hindutva ideologues went after Cow protection, which almost devastated the Leather and leather-based industry, which had been on the considerable growth track.

When most of the industries not optimistic and don’t find useful to turn the face towards Banks for their business, Modi government infused a lump sum amount in the PSBs. As SBI’s new chairman Rajnish Kumar in an interview pointed out that after the recapitalisation Bank might give more priority to manufacturing industries like steel and cement and less interest rate for certain baskets. This presumption came forward because of government, on the other hand, investing around 7 lakh crore in the mega infrastructure Projects like Bharatmala in the next 5 years. It mean both government and Banks shifted their priorities to certain areas of interests. This will be another blunder, as the Investment on infrastructure gives fiscal gain at a distant future also increase the fiscal deficit, as per the report India’s fiscal deficit during April-August touched 96.1% of the budget estimate for the full fiscal year that ends on March 2018. The deficit was 76.4% of the full year target during the same period a year ago.   

Since the Recapitalisation initiative for Modi government is not new as I have pointed out earlier in this article. In 2014-15, it launched one of the ambitious Indradhanush scheme to rescue the PSBs which are burdened by the Bad loans and NPAs. It planned to infuse 70,000crore over the four years. Consequently, the Recapitalization scheme of Modi government is not at all unprecedented, but the amount which Finance Ministry put forth. Recapitalization scheme is not new and also at hand fiscal activity to bail out the banking sector, but it is very crucial how to bailout without further burden on the state exchequer.

While giving clarification to this Finance Minister Jaitley said, the Rs 2.11 lakh crore capital infusions into the banking sector will come over the next two years. It will come in three parts. The government itself will directly pay banks Rs 18,000 crore by buying their shares. It will also encourage banks to raise Rs 58,000 crore from the market. But the bulk of the amount – Rs 1.35 lakh crore – is expected to come from recapitalisation bonds.

According to Reserve Bank of India estimates, the total excess deposits accrued to the banking system due to demonetisation was in the range of Rs 2.8 lakh crores to Rs 4.3 lakh crore. It is these excess deposits that the banks are expected to use to buy the recapitalisation bonds.

Many economists and financial advisors had exhorted Modi Government to increase liquidity ratio to make economy float safely in the crisis. Conversely, Modi government allowed a moderate 10k crore capital infusion for the PSBs in the 2017 budget and push for consolidation of the banking sector. But all of the sudden walling the process of consolidation of PSBs, not bringing out an evolutionary mechanism for debt recovery in a haste government is going to infuse huge money in the banks, even though it is not sufficient. According to the Fitch ratings on September 2017, by 31 March 2019, Indian PSBs need 65USD billion (around 4lakh 23 thousand crores) to meet Basel III capital standards.

In 18^th November 2016 when asked in Loka Sabha to provide details of the Loan defaulters and give data state-wise  The Union government in his answer remained evasive to provide the names and state-wise data. According to the information given by Ministry of finance, in 2013-14 the wilful defaulters were 6336 with an amount of 45,731INR Crore which grew considerably in 2015-16 to 8,167 with an amount of 76,685INR Crore. The recovery and conviction rate were also not satisfactory.

According to the information given by Care Ratings on the Non-Performing Assets (NPAs) of PSBs, within 1 and quarter years the NPA ratio has grown from 7.69% to 10.21% in June 2017. Data shows soon after the GST roll out the NPAs increased manifold. There is an understandable reason behind it, as government delayed the repayment of input credit, Business needs more credit to run its business forward. Although RBI, not changed its interest rate, it is not easy to lend money to all the sectors.

Secondly, the difficulty of distribution of the recapitalisation fund to the banks. Since, till June 2017, the 11 PSBs account for a share of 67% of the total NPAs 829,338INR Crore. SBI, PNB, BOI, IDBI, BoB account for a share of 47.4% totalling to 3,93,154 INR crore.  If the government will focus on NPAs of PSBs only the state-owned banks and other cooperative banks will suffer collaterally as most state governments are not in a condition to bail out their own banks.  

I’m going to conclude by quoting Johan O’ Donohue, “Our trust in the future has lost its innocence. We know now that anything can happen from one minute to the next. Politics, Religion, economics, and the institutions of family and community all have become abruptly unsure.” 

FDI In India: Mouth filling but a Vaulting Horse

Lambodar Prasad Dash

For the first time on August 17 this year, Astro-Physicists, Scientist for the first time detected the collision of two neutron stars, which happened at a distance of 130million light years from the earth. They also found that the collision also produced gravitational waves, light with an abundance of precious metal like Gold, platinum. The most astounding galactic activity divulged on 16^th October, after much research and analysis. Where the precious metals went? Have we received the dust of those precious metals? If received, how much? These questions may seem to be much weird and irrelevant to our discussion

Let’s assume that the collision of those neutron stars is like allowing Foreign Direct Investment (FDI) and its impact on a prevailing economy. Which has some immediate effect and some might be detected in the remote past. After the acceptance of Globalisation and subsequent Economic Liberalisation, Every developing country believed that FDI is like “a cosmic scale atom Smasher of energies for beyond humans ever will be capable to build”( what scientist described the Neutron stars collision) which can bring loads of fortunes to their economy. Yes, of course, since its implementation the FDIs proving as boosters to the economy of the developing and third world countries. All are much pleased with its short-term gains, but like the neutron stars collision many of the issues yet to be experienced. Some of them experienced but remain without explanation. 

Now, come precisely to our topic. I have studied many researched articles and papers on FDI, 80% of them equivocal on certain pros and cons. For the last two decades, since the implementation of FDI in India, the protests and criticisms on FDI remain almost limited to the Political debates. There are research works, but most of them lack inductive reasoning or authentic micro-level case studies on the FDI and its impact on the economy.

Indian Government in 1966 and 1985 tried to allow FDI but it failed.  In the late 1990s, during PV Narshima Rao(PMO)-Dr. Manmohan Singh(FM) severely debt-ridden India allowed FDI under the structural economic reform process. In 2006, under Dr Manmohan Singh(PMO) and P. Chidambaram(FM) further liberalised the FDI inflow through an automatic process, which doesn't need Government Permission but a compliance to Reserve Bank of India (RBI).  In 2013, India government made almost all the sectors open to the FDIs. In the Last two years, Under the Modi Government, it gets much enhancement with high voltage publicity on the name of “Make in India”. The Economic doldrums which arise after the Demonetisation and GST, Modi Government jumped quickly with a data sheet to prove that these reformations increased the FDI inflows. But In 2015, the India overtook China and US as the top destination for FDI.

The Organisation for Economic Cooperation and Development (OECD) defines FDI as to take control of owning 10% or more of the business. Businesses that make foreign direct investment are often called as Multi-National Corporations (MNCs) or Multinational Enterprises (MNEs). An MNE may make a direct investment by creating a new foreign enterprise, which called Greenfield investment or by the acquisition of a foreign firm, either called an acquisition of or Brownfield investment.

Since its implementation, Indian Government insisting on the Technological Transformation/up-gradation, Employment Generation, easing Demand-Supply chain, Revenue Generation besides there is a belief that FDI can be a tremendous source of External Capital which can lead economic development.

Now come to the statistical figures, Research works like Sirari and Bohra (2011) on FDI & growth of service sector in India pointed out the growth of service sector to GDP is directly proportional to FDI. I’m here to point out some casual relationship between gloomy economic issues directly linked to FDI. For it, I’m taking three sectors Innovation, Agriculture, and Micro and small Industries especially cottage industries in India.

Mr. Mukharjee In his research paper quoting  Coughlin, Terza and Aromdee (1989, United States) said that the number of potential sites, state per capita income, manufacturing density within a state, better transportation infrastructure, higher unemployment rates and higher expenditures to attract FDI were positively linked to FDI flows. On the other hand, higher wages and higher tax rates had a negative impact on FDI flows.

However, In the Chinese context, based on panel data covering 98 hinterland cities of China for the years 1999 to 2005, Luo et al (2008) found that well-established factors such as natural resources and low labour costs were not important in determining FDI flows to China’s hinterland. Instead, policy incentives and industrial agglomerates were the most important determining factors for FDI flows.

There is no fixed rule which can attract FDI. It depends upon the variety of economic and Political situation of the invested countries. However, two things are noticeable from the above observations, firstly, the Investors have more decisive role than the government of the invested countries, and secondly, the major attraction for the FDI is low input cost both of Material and Human resources for production and Market. It can be explicitly concluded that the Invested country is always at the receiving end.

When we come to our own country, the FDI inflows to it dominated by the Automatic Route and followed by the Reinvested Earnings and acquisition of shares. FDI through Government approval route is gradually declining year on year basis (RBI, Atri Mukherjee).

Fig-1

In the initial years, the FDI was dominated by the retail sector, but later it is shifted to the Service sector. In 2014-15 the FDI inflows to service sector were INR27,369 Cr, in 2015-16 it increased to INR 45,415 Cr and during 2016-17 (March 31) it is INR58, 214 Cr. Between 2000 and 2017 total FDI inflows is INR316,568 Cr, which is highest among any other investment. This is followed by Computer Software & Hardware, Construction Development and Built-up Infrastructure, telecommunication, Automobile Industry and Drugs & Pharmaceuticals. 

But the India’s International Trade (Export and Import) largely dominated by Mineral fuels, Mineral oils (35% of the total imported Goods and 20% of Exported goods) followed by pearls, precious and semi-precious stones (11% & 12% ) and the top destination for export is USA and UAE, which is around 27% of the total exports. While the top two Importers to India are China and UAE, both contributed 22% of the total imports. It shows that in India, the sectors which attract highest FDI are not helping much in the international trade rather targeting domestic market. Now I place an example how the government is totally zilch on the Innovation and technological up-gradation of Indigenous products. The Lather and Lather products accounted almost 21% of the total exports but the FDI inflow to it is negligible i.e. .02%.

As said by the FDI fact sheet (till 2017, March 31), Government of India, since 2000 the Maharashtra (with some varies) was the topmost destination of FDI inflows with 31% of total inflows to India, followed by Punjab/Haryana (New Delhi 20%) , Tamil Nadu(7%), Karnataka(7%), Gujarat(5%) and Andhra Pradesh(4%). It is conspicuous that the economically advanced states receive Lion’s Share of FDI inflows.

Nunnenkamp and Stracke (2007) found a significant positive correlation of FDI with per capita income, population density, per capita bank deposits, telephone density, level of education and per capita net value added in manufacturing in India.

Fig-2

When we are talking about the employment and income growth, the Per capita FDI inflows has no direct link or an overlapping link to the per capita NSDP or Annual wages per worker. Andaman & Nicobar Island has 0% per capita FDI inflow during 2010-11 but the Per capita NSDP 76,883INR and annual wages per worker is 65,831INR, but during the same period Andhra Pradesh received 679INR per capita FDI inflow but the per capita NSDP is much below than A&N i.e. 62, 912INR and annual wages per worker is 61,007INR. Similarly, Goa Received highest per capita FDI inflows and its per capita NSDP is 1, 68,572 INR and annual wages per worker is 1, 26,788 INR. Although Jharkhand got 0% per capita FDI inflow and its annual wages per worker is much higher than that of Goa i.e. 1, 49,847 INR.

Fig-3

Now come to the Agriculture and Allied sector. The FDI inflows to it are below .58%. The total foreign investment is on fertilizers are .17%, Agriculture machinery (.11%), Food processing industries 2.27% (but most of the food processing industries dominated by meat and seafood). There are a thousand varieties of indigenous seeds and farm animals breeds but very few got patented. Now the foreign investment on Genetic Modified seeds is being encouraged by the Government. Some research works on Madhya Pradesh accused the forceful implementation of GM farming to the growing Farmers' suicide incident (Fig-2). At some point, the most developed States, which also attracts a major portion of FDI is unavoidably linked with Farmer deaths. (Fig-3)

Fig-4

The incoherent government policy on the Agriculture already weakened the Farmer's economy. Now to make FDI more attractive to Foreign Investor's government putting unreasonable pressure on the land to create a conducive environment. 

The investment procedures and double taxation avoidance treaties are the major cause of tax heavens. But the government has paid little interest to eradicate the menace. Even Last year, at several occasions Modi Government reiterated to bring reformations in the Mauritius Route (Fig-4) in FDI but no authentic steps have been taken so far. Rather the FDI has found a new route i.e. Singapore to avoid taxation in India. In the next article, we will discuss on the dark side of this international investment routes. 

Indian Perestroika: From this point to future

Lambodar Prasad Dash

After 70 years, India going through a new phase. Government under Narendra Modi has tried to bring a structural change of the entire economic, social and governmental setup mostly influenced by the right-wing ideologies. Since 2014, India has also experienced many reformations some of which are government induced and some independently through legal and international aspects. Can all these reformations bring a better future? There is no simple answer to it, but a section is Hopeful and another section is skeptical to it.

After 3 years, we are in the middle of the evolution of Economical, Social, legal and political policies. However, the situation is such that we neither rewind the process nor has same enthusiasm to embrace all of them. Now be specific to the question, can this Perestroika of Indian Economy move forward with the same spirit? International Monetary Fund (IMF) in its recent world economic outlook and the World Bank both are positive but with an asterisk mark, which clearly stated: “if government thrust for the change remains unchanged”. Will the Government resolution remain same? It is a big question and also a game changer. Many International and national financial and governmental policy watchers including IMF and WB positive towards Modi Government for a single most powerful reason that it has a strength of democratic numbers, unlike previous government. In the contrary the forecast based on the mechanical analysis of statistical data only which has complete blind towards several relative issues like, the commitment of government machinery, implementation strategy,  and people’s emotional response to the pros and cons of the policies.

Policies are the binding force between centre and state, more precisely it determined the quality of the relationship between Government and its people, which in turn establish a collective effort for the nation’s development. Besides this, most of the economic policies are designed to solve particular problems at a particular time. Not all policies are a panacea to the plethora of problems for all the times. So, for the sustainability of the economic development, we have only two options, allow the policies for continuous evolution or formulate it with a collective approach. But, the fundamental predicament of the policies which brought disasters and severe criticism is Modi government’s plan to build watertight and congruent policy order with an aim for universal application throughout time (!) in a simple sentence, Modi Government unlikely to accept India as a unity of diversified interests and economic life.  

Of Late, the intellect of the Modi Government accepted the truth. On 11^th of this month, in the 1^st meeting of Economic Advisory Council (EAC) to Prime Minister emphasised the government to stay firm on the reformation but recommended to evaluate the policies and ready to take suggestions from beyond the rightwing contours. However, when the government has a congenital right-wing instinct and within a few months going to face series of assembly elections and general election, will this suggestion be implemented with its true spirit? The voters of 2019 will not be like 2014’s, the Image of the BJP is diminishing, Voters trust much strained due to promiscuous promises. In such condition, these democratic exercises have largely determined the future of the policies and the ability of the government.

Even if we presumed that the Modi Government will pass through unscathed in the next 2 years, the IMF figures are not so high-flying for India in comparison to the other nations with a similar economic scenario.

India's forecast in IMF's World Economic Outlook, 2017

In 2009, the year when the whole world was under the grip of severe economic recession, India’s total investment was 36.480 percentage of the GDP. In the current year, it further declined to 29.936 and as per the IMF forecast in 2022 it will be 30.936. It will be wrong to give a reason that with an increase of the government investment in infrastructure and productivity of the human resources the forecast will be altered. Without proper utilisation of the human resources and private investment, the government spending will be more than the revenue and subsequent decrease in savings.

This situation further pointed out by IMF, in 2009, the Gross National Savings (GNS) was 33.665 percentage of GDP. In 2017, it is 28.558 and in 2022 it will be 27.939 (% GDP). This implies government is spending is more its income than it produces.

The government revenue in the current year is 21.130 percentage of GDP while it was 18.518 in 2009. In 2022 it will be 21.326. Mean, the subsequent years the revenue generation is not increasing but will remain static. In contrary to the static revenue generation, the government expenditure is decreasing around 10% year-on-year basis. In 2009, the expenditure was 28,052, in 2017 it is 27,488 and in 2022 it will be 26,683. But recently, more WB supported SANKALP and STRIVE scheme and increase of salaries by implementing 7^th pay commission recommendations, the government showed its keenness for the more government spending to counter GDP growth. This is also somehow against to the suggestions of the IMF and detrimental to the future sustainable and inclusive growth of India.

Further, the declining government savings implies two issues, one, in future manufacturing industry will be more dependent on the government purchases and second, and people will spend more on consumption. If we take the 2^nd issue, it implies the growing CPI inflation in coming years.

Although IMF is hopeful for the Increase of GDP, it will reach 300,223,330 Billion INR (at current price) than the current 167,184,181 billion INR. Meanwhile, the data also indicates that the GDP deflator index also increasing. In 2009, it was 87.183 and current year it is 128.518 and in 2022 it is forecasted to 158.002. This implies two major things, the loopholes of the government planning to subdue the declining GDP and increasing the cost of living. Increasing cost of living is a clear sign of an increase of Poor-Rich gap and expansion of population under chronic poverty.

While, Modi government tries to blend its Right-wing economic model to the neoliberalism, but to tackle the economic problem it follows the Keynes model. If the government went further without any amendment to the present economic model, in near future government will be more blamed. If in order to gain mass popularity, the government would reduce or avoid taxation (Land, Gold, Oil not under the GST purview) and then meet the revenue shortfall by the creation of more artificial money, eventually it will lead more corruption like previous government coupled with a maladroit economic situation.

Modi Government in Reality-Shock

Lambodar Prasad Dash

How much Modi Government trying to stifle the growing piques on the Jay shah's alleged financial gain issue, it is another incident which further exposed the Modi Government to the Reality-Shock Syndrome. Recently, the RBI’s Quarterly Policy Report and Earlier to this the Centre’s financial report on GDP and Economic Survey already made the Government incarcerated to the situation.

Prime Minister Narendra DB Modi and BJP National President Amit Shah (File Photo)

Jay AmitBhai Shah, the only son of most powerful Bharatiya Janata Party (BJP) national president Amit Shah. The Wire, an online media house uncovered the alleged financial misappropriation which gives Jay a whopping 16,000 times monetary gain within 2 years. The amount of truth behind the accusation is yet to be proved (if Modi Government or a judicial proceeding wants). It has put an incorrigible question mark on the submission of the Modi Government and its precision on corruption. Although the issue is not related to any members of the treasury bench for which the government to take the blame, yet it is the subject directly impinge on the party’s very sensitive part, its image.

Before going to the details, it is relevant to quote Tom peters and Nancy Austin from their book “A passion for excellence: The leadership difference”. 

• People have ego and developmental needs ...and they will commit themselves only to the extent that they can see ways of satisfying these needs.
• People cannot be truly motivated by anyone else...That door is locked from inside.
• When people are in an atmosphere of Trust, they will put themselves at risk, only through risk is there growth....reward...self-confidence...leadership.

Now, come straight to the 3rd point, since 2014 Election Campaign Narendra DB Modi time again has reiterated that the “corruption” is the biggest enemy of the country and it is the only hurdle to India’s development. He promised that his mission as Prime Minister is not to enjoy power but to uproot it. He also cautioned that the fight against corruption is not so easy and called the people’s support to be ready to bear the difficulties patiently during these fighting.  People unquestionably believed his Magniloquence. Extended support not only during demonetisation but also in his every disastrous reformation.

Contrary to the situation, during the same time, in recession stuck Brazil People came out to the streets and forced the government to rollback demonetisation. In Brazil, there was widespread resentment, spontaneous Protest sparked overnight. In many Western Countries, it is evident that if the government failed in any economic administration, the people’s remonstration is intense. But, in India the situation is different. People are more forbearing and indulgent towards such situations.

Now, come to the 2nd point, It seems that soon after 4 months of the implementation of demonetisation people de-motivated slowly but surely. As most of the economic reforms could not substantiate the Modi Government’s claim on corruption, Black-Money, Terrorism, Parallel economy, digital transaction, except the government forced surroundings. Rather the economic reforms posed as a stumbling block to the big ticket schemes like “Startup India”, “Make in India”, “Smart City Mission”, and “Skill Development”. Besides this, Modi-Government unable to boost the Export of indigenous products except for software

The Spice of India, most demanding products faced severe hardship during all these years. In the year, 2016-17 (Apr-June) the export reduced to 621.78US$ from 2432.85US $ (2014-15). Agriculture and Processed Food Products Export Development Authority (APEDA) Export performance abridged. In the year 2015-16, total export of Agri and Allied products was 43,369.62INR Cr which is reduced to 6,398INR Cr in 2016-17. PEC, a Government company, primarily engaged in export of projects, engineering equipment and manufactured goods, defense equipment & stores and import of industrial raw materials, bullion and agro commodities also faced financial constraints. Sales turnover reduced from 9780INR Cr (2013-14) to 3746 INR Cr (2016-17). Similarly, the sectors which declined are Processed meat (-77%), Leather and leather manufactures (-6.08%), Chemical and Related Products (-73%). Plastic & Rubber Articles (-2.68%), Base metals (like Iron, Aluminium, Copper) (-6.25%), except machine and Telecom instruments the export of other electronic items reduced. In the IT sector, Software service export growth dropped off (5.6% in 2012-13 to -.7% in 2016-17), IT-BPM export growth reduced from 11.1% (2012) to 7.8% (2017).  All these sectors accounted 40% of the total exported goods and services.

Last but foremost, In the above mentioned psychological traits of people in relation to an organization or a nation, the first assertion is on the people’s ego and development needs, which now are dwindling. As now, when people see that the Modi Government is noiseless on the perpetrators of corruption, Black Money rather their own men has been accused of the series of corruption charges. Employment is not generated as per the Election Manifesto but to a certain extent adding numbers to the unemployment.

It seems that the chest thumping on development and projecting himself “Vikash Purush” (Messiah of development) won’t produce development. The statistical figures of the government itself negate the claim of the Modi Government.  It shows that either Government is suffering from Hemispatial neglect Syndrome (a person who could not see or recognise the other half of the things) or it is a deliberated attempt of manipulation of facts, doctored data and managed publicity to hide its weakness.

For example, the Modi government’s one of the most hyped programs is the rural electrification scheme. The government maintained that even after 70years of Independence many villages having without electricity and they are doing a tremendous job to make all of them electrified. But in reality, before 2014, except Jharkhanda, Bihar, Odisha, UP, WB and Assam all the states achieved electrification between 90-98%.

In the Human development index (HDI) India already gained 4 positions before 4 and within last 3 years the condition not improved well even after the increase of budgetary allocation on social welfare schemes. According to the economic survey report (2016-17) part-2, Indonesia, Brazil, Sri Lanka and Malaysia are far better-performed nations than India. 

T S Venketaraman (Management Crises and Strategies for Growth, The Hindu Speaks on Management) rightly quotes, "... the financial difficulty is a result of several managerial mistakes made months or sometimes years ago. If a manager has misused funds once, he will do the same next time if he is given more money."