The admission that the Indian economy is under stress comes to a trifle late as the firm indicators like the realty, equity and the credit costs. The steep fall in the sales of automobiles, another barometer of a healthy economy, is also a cause of worry.
The post-budget wiping away of Twelve lac crores of equity is indeed a cause of concern. Two months ago, the bourses waltzing at a 40K Sensex. The nation went euphoric after the elections, but only until the budget, when the finance minister announced a proposed increase in the minimum public shareholding to 35% from 25%. Though there was a reduction in the corporate taxes to 25%, the rise in import duties of several inputs and the additional cess on petrol and diesel have fuelled an inflationary trend.
Automobiles are an essential component of the country’s economy, and sustainable growth of the sector also evidences a healthy credit policy and an employment situation. The present status, of more than 35000 crores worth of cars lying unsold is only one part. The other is those already sold and financed by banks are hauled back, unable to store for lack of space. The fall in the sales of cars could be directly proportional to the pink-slips issued.
Legislative control over fraudulent realty companies was necessary, and RERA has revealed the hollowness underneath. Big names like Unitech and DLF soon became pariahs, the directors of Amrapali going to jail, the cash-starved NBCC, ordered to finish the unfinished 42000 flats. The institutional credit to the realty has dried up, and more bad news can be in the offing from this sector.
Besides all this is the news of the fall in the manufacturing sector’s exports, causing concern. It may be a long way until we grow up to fill any, though unlikely, void of the Chinese share of the American pie. There are weakening sentiments the world over.
Banking sector may have adequate deposits, but have no takers for credit. One, the credit costs are not serviceable, and the Indian small, and mid-sized corporates are not used to the newer tightened lending policies. The bankers, worried about fund diversions, are demanding personal collaterals of the directors, as they would in a partnership firm with unlimited liability. More than four lac ghost companies have been liquidated by legislation.
This period to me is transitional, the industry waking up to newer regulations and compliances. Though the resistance is unambiguous, it would melt away in a few months. There is a concern; that the agricultural sector has to do well and offset the manufacturing sector’s slackness. We should not forget, the two decades ago Asian currency crisis, when most of the Asian currencies fell like a pack of cards from a contagion effect, triggered by Thailand. We were mostly unaffected, saved by a robust farm sector.
There always is a cyclic order or a disorder in any economy, national or global. It may be inappropriate for panicking on the gloomy doomsayers right now, a period of correction. The rains seem to back in strength and I guess the next wave of reforms should arrive too.
Sampath Kumar
Intrépide Voix