I dunno whether this would be a short or a long post but as the NPR, NRC seem to be deeply linked to how the Indian Economy is at the moment, I would say that the energy and the political capital the Government is putting into wrong things . Why I say that, I will attempt to use studies, data and newspaper reports to share what the issues are and where the Government should have been looking at and instead where it is using its energy and why it’s wrong.
State of Indian Economy
While it is by and large recognized by everyone that the Indian Economy is in slow-down or perhaps beginning a recession, a recent working paper by Arvind Subramaniam and Josh Felman who tell how the Indian economy is doing or not doing. While I’ll not go into many details as the paper itself is quite interesting, I would like to draw attention to couple of things .
While I have shared the working paper as well, one of the more interesting graphs I found in the paper is the one I am sharing below –
Now the sad and interesting part of that graph as shown above is that entrepreneurs, business houses etc. would be paying more to service debt rather than making profit. So, in essence, if an entrepreneur decided not to do any businesss today, he would be much better off than taking efforts, taking all the risks and still spend money out of his pocket to service debt instead of making profits. Of course the transmission of why lower interests given to banks are not reaching to the businessman have been more than effectively shared by the working paper so will not go into that. I have to commend Dr. Arvind and Mr. Josh for making the paper so simple so reading it even once or twice is enough to grasp the issues which threaten the Indian economy, this is when I have read and have been reading such papers about the Indian and International markets in my spare time.
There is another part however which hasn’t been really answered as the point being made in the working paper is that private banks are better than public sectors banks at either risk management or other things but there is no evidence shared which bears that out. One could argue, in fact the opposite. Private banking is much more opaque and there has been no discussion on how such banks are supposed to fill the needs of the millions of the customers and potential customers. The social welfare of banking that Public banking fulfills, how Private banking is supposed to do that is not told. India is still a very much an under-banked market. While Dr. Arvind and Mr. Josh have shared a bit about direct benefit transfers, they haven’t talked anything about the needs of the MSME sector or even how DBT would work in real life. As have been in Airtel Payment banks and others, most private banks have at one time or the other violated rules and norms. I am not going to get into great lengths but there are possibly about a dozen or two-dozen well-known scandals with private banks where people have lost money. The Great 2008 financial crash itself was made by private individuals, companies who were doing risky products and even after the crash, riskier derivative financial products seem to thrive in the American market. As far as regulatory bodies in India, such as the banking ombudsman or RBI is concerned, they seem to behave very similarly to SEBI and other regulatory bodies which doesn’t bode well for the Indian economy.
V.G. Siddhartha and CCD story
Apart from the working paper, there have been other things happening which don’t tell or paint a good picture of the Indian economy. For e.g. I am sure some of the readers may have remembered my blog post about V.G.Siddhartha . For those who might not know Mr. Siddhartha, the gentleman was the owner of CCD or Cafe Coffee Day. He committed suicide in July 2019. I, alongwith several thousand users, patrons, entrepreneurs who were encouraged by his vision and rise were saddened by the news of his demise. There is a fact or news which I hadn’t shared on the blog post around that time. The whole tax authorities issue which started was that some gentleman who claimed that he was working for CCD or Mr. Siddhartha was caught with some cash. Another fact is that both Coca-Cola, Barista and others were interested to take over CCD so it isn’t far-fetched to assume or presume that the person who was caught with cash might have been planted by his competitors. Also the amount of cash, apparently a few crores which were found in CCD offices was not at all commensurate with the scale of business the gentleman was doing at. In part, his suicide was made by the Tax Department’s heavy-handedness and that continues even today.
Government’s approach to Business
Over the past few months, there have been lot of negative views and how the Government of the day views businesses and businessman. A recent example would prove my point. Do you know for instance, the Ministry of Corporate affairs (MCA) removed almost 2 million directors and about 0.4 million companies due to not filing either their KYC forms or not filing the annual returns. In fact, this news item has been buried and only some people who are interested in knowing such news are able to dig it up. Now while the Government says these are all bogus and shell companies and in fact the FM (Finance Minister) shared the same in Lok Sabha (the lower house of the parliament) shared the numbers while also in the same breath sharing that there never has been a definition of what a ‘bogus’ or sham company is. With the cost of real-estate and other things going up, many such small companies are using co-working spaces. In fact, even quite a few medium to large business houses have used co-working spaces especially as the overheads are low. Also what has not been mentioned that the costs of compliance has gone up while the window of compliance has gone down and there are all sorts of inefficiences and corruption that small companies have to deal with than with large companies.This will severely impact as more entrepreneurs will think to remain as entrepreneurs or as partnerships rather than become private companies and eventually public companies which are needed for a big country like India to fulfill the country’s needs and requirements. Also less competition means more monopoly and more possibilities of more companies coming from overseas and taking advantage of less competition. The other part is when companies are known to be penny stocks which thrive on false or fake news, no action has been taken. While there are probably hundreds of examples in the Indian Stock market, a recent example shared by Sucheta Dalal is enough to prove the point. Her link to stock manipulated where she has documented at least 100 more cases and no action taken by SEBI is case in point.
Now as far as competition is concerned, there are probably hundreds of examples, for e.g. all electronics comes either from China, Taiwan, Singapore or States. Neither the GOI has any concrete plans for the sector and more often than not just make noises so they can be seen as doing something rather than doing actually something. For e.g. Mr. Piyush Goyal recently made a statement that we should not be dependant on imported electronic goods. Now there is nothing new in this statement, this same statement has been told and shared almost for a decade, decade and a half by almost all political parties but no effective strategies and finances have been put in place to make other people invest in India. In fact, I was talking to a dear friend few days back and we were talking about negative interests which is there in Japan and many European countries as well as ECB and low interest rates in States and why don’t they invest in India and we came to the conclusion that perhaps other avenues such as Bangladesh and others seem to provide a much more stabler economic, policy and political environment than the one we see in India where there are flip-flops every so often, case in point the GST flip-flops among many others.
Political Capital and Remedies
The last 10 odd pages of the working paper delve upon possible solutions of how the issues need to be tackled have been shared by Dr. Arvind. Most of the solutions and recipes as shared by him are not new at all. They have been often documented often enough. What this Government had in 2014 and even in 2019 is the political capital which could have been used to push the reforms or changes shared by him. He has also mentioned co-operative federalism and I should say the art of negotiation that Mr. Vajpayee had vis-a-vis our current dispensation which seems to lack imagination or depth of any kind. While Dr. Arvind has tried to end it on a positive note, that only can happen if the Government appears to engage with the opposition and try to find answers rather than doing the my way or highway attitude that the Government currently has. Part -2 will be more about the whole NPR, NRC issue and the agitations which are happening in that regard.