Economic Highlights
New
Delhi, 16 March 2020
Corona Panic
DIALOGUE ON ECONOMY
VITAL
By Shivaji Sarkar
The
last quarter figures of 2019-20 fiscal may have reasons to cause worry. An
uninteresting Central budget, corona virus, plummeting stock indices and
uncertainty over bank mergers are thawing industrial and economic activity.
The
stock market notionally lost Rs 11.28 lakh crore in a day on March 12 as sensex
plunged to 32778 points – loss of 2919 points in a day. Since February 28, it
is on a roll, when it plunged by 1000 points to 38235. In less than two weeks
it lost about 6000 points. Foreign portfolio investors (FPI) withdraw Rs 18343
crore from Indian markets. Since January 2019, it has been a tricky year for
the market. Though stocks are not indicator of the economy it reflects the
overall market condition.
This
can be attributed to a global panic. India also chose to be part of the panic
as few understand what the COVID-19 or coronavirus is. Precaution is fine but
leading nation into a chaotic panic situation was least warranted. Whether a
running nose is the symptom or a dry cough, most pontificating TV experts are
not aware.
The
masks are doing brisk sales though Union Health Ministry says nobody in the
ministry wears it nor it is needed nor it can prevent it. But the masks have
definitely masked the decision-making process. The officials instead of
fighting the disease are spreading scare jeopardising social and commercial
activity.
The
confusion has travelled to the Asian Development Bank (ADB). Assessing the
possible COVID-19 losses to India it has given a wide range of $387 million to
$29.9 billion in personal consumption cut. It is an ADB hypothesis but is not
presumptive. The National Statistical Office says consumption growth would be
around 5.9 per cent against 5.6 per cent in 2019-20.
It
does not mean it is not hitting India. Impractical advisories, orders and
circulars are leading to a situation of uncertainty; indecision and creating
scare all around are leading to a near lockdown situations. Everyday 1000s of
students go to a university or educational institutions. Decision to ban
seminars, meetings and conferences add to confusions as India did during 1980
solar eclipse. Later scientists said that no eclipse is that bad but the
country lost a beautiful day to panic.
Vacillating
official attitudes are hitting trade and other economic and social activities.
Everyone in authority is talking in ifs and buts. Different kinds of alerts and
advices are increasing confusion. This needs deft handling.
Moody’s
rating agency has meanwhile reduced growth projections for 2020 to 5.4 per cent
from 6 per cent. It reduces forecast for China to 5.2 per cent. As per National
Statistical Office, India’s third quarter GDP growth is a mere 4.7 per cent.
The final 2019-20 growth is likely to be below the budgetary expectations. It
could be around 5 per cent against 6.1 per cent in 2018-19. The outlook has
been so since 2018 IL&FS collapse for Rs 91,000 crore fraud by the road
sector.
The
central budgetary provision of dual income tax procedures, high rates of 42 per
cent I-T, cuts on subsidies, and dynamically increasing rail fares, high road
toll, fastag and high road cess realisation of road cess on petrol to the
extent of Rs 2.6 lakh crore a year, junking of cars to benefit industry are
hitting the people hard. So does rising food and other inflation. Even export
growth has come down. On the production side, the industry slowed down to just
0.1 percent in third quarter.
As
the ADB says it has hit the purchasing capacity of the people. The Economic
Survey is also not upbeat. It is critical of linkages of rent-seeking caused by
politicos and industry honchos. It has led to the banks to an abysmal state.
Amid
all this the announcement of merger of 10 banks to four has not been taken so
enthusiastically. The market is confused. The workers are uncertain of their
future in an economy that is seeing more job losses.
The
formula for improving their state is through a process of amalgamation.
The decision has no linkage with the present COVID-19. The decision was
announced in the 2014-15 Budget. It was the first budget of the Narendra Modi
government. It had done so on the basis of the dwindling performance since
2010. Part of the decision was already taken by the UPA government.
Finance
Minister has announced four new set of mergers – Punjab National Bank, Oriental
Bank of Commerce and United Bank of India will join to become the nation’s
largest lender, Canara Bank and Syndicate to amalgamate; Union Bank of India
and Andhra to merge; and Indian Bank to join Allahabad Bank. In 2017 there were
27 banks, in 2018 reduced to 21 and now to 12.
Mergers
would lead to lots of problems including the customers being asked for new KYC,
new debit cards, and revival of fixed deposits. Even farmers and DBT
beneficiaries would have hiccup. The FM says this would be the way to better
utilisation of the capital. The NPAs are around Rs 12 lakh crore. The country
has recapitalised the banks with Rs 1.20 lakh crore. It would need another Rs
55,000 crore of taxpayers’ money to be reinvested for resuscitating the PSBs.
The
official view is that the banks have to have larger capital to be competitive
in global market. Critics say it might reduce their expenses but would also
check new recruitments and lead to voluntary retirement. Bank employees are
perturbed and have served strike notice for March 27. Their wage revision
despite rising inflation remains stalled.
The All India Bank Employees Association (AIBEA) General Secretary SH
Venkatchalam says till March 31, 2019 PSBs had a total profit of Rs 1.5 lakh
crore. After adjusting Rs 2.67 lakh crore losses they are have end up with Rs
66,000 crore loss. He says that the losses are planned to be made up by
retrenching staff, privatisation and reducing interest rates on poor savers’
deposits. Interest cut, he says, hurts the savings and reduces bank capital.
After 2007 Lehman sub-prime crisis, the US government had to put huge funds
to keep the one of world’s biggest entity AIG. European governments also
did so. The worlds’ financial system collapsed because of a private-public
nexus. The government has to wade through difficult situations. It calls for a
national consultation to evolve a new economy.---INFA
(Copyright, India News & Feature Alliance)
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