Economic Highlight
New Delhi, 27 September 2021
Modi
Taps US Corp
HOPEFUL,
FIRMS LUKEWARM
By
Shivaji Sarkar
The visit of Prime
Minister Narendra Modi to the US has tried to kindle hopes in an economy that needs
investment. But the American companies have yet not given any firm commitments at
the meetings with corporate CEOs. This despite India having taken several steps
to usher in reforms through an asset reconstruction construction company (ARC) or
the bad bank, lower interest rates, networked businesses and chain of roads.
The Prime Minister held bilateral meetings with
US President Joe Biden and Vice President Kamala Harris and also met with his
Australian and Japanese counterparts Scott Morrison and Yoshihide Suga. Modi
also participated in the first in-person Quad meeting after COVID-19 and held meetings with five global CEOs for
potential investment in India on Thursday last.
Some companies such
as Qualcomm has investments in wireless modem, digital media networking, dairy
transportation to defence. Now Modi suggests these to invest in hi-tech sectors
and measures to strengthen innovation ecosystem. As the Qualcomm is in India
since 1996, it may continue to increase its operations, but that would be its
business decision.
General Atomics, which opened its first office
in India in 2018, is making significant contributions to deepen Indio-US
defence and security cooperation. It is working with both governments in an
effort to provide India with the latest defence systems and technologies. At
the same time, it has partnered with Indian companies to develop solutions for
Indian defence as well as capacity building.
in real
estate too are always lucrative. Blackstone Real Estate Fund has so far
invested $15 billion in real estate, private equity, real estate, education,
fashion, packaging and housing finance. It would continue to do so as per the
meeting with its CEO Stephen Schwarzman. The Fund is said to be the largest owner of commercial real
estate in India. The company played a key role in launching India's first real
estate investment trust (REIT) along with its partner Embassy Group in 2019 and
has since launched two REITs in the country.
The Quad is a symbolic
multilateral body. It provides a platform to seek cooperation from like-minded
countries on issues such as ensuring respect for territorial integrity,
sovereignty and peaceful resolution of disputes. It is a kind of united front
to check the unceremonious and belligerent activities of China. As President
Joe Biden says it plans to open up to build a free Indo-Pacific. The Quad
leaders agree to scale up collective strategic cooperation and it’s gaining
momentum, but still China could not be contained to the extent it is planning.
However, there may be
gains in the future. As of now, it is expectations amid not such good
situations in the domestic arena. The country’s non-performing assets (NPAs) increased
because of not only the business cycle but also due to many underwritings. Various
steps such as taming inflation, the Insolvency and Bankruptcy Act, Real Estate
Regulatory Act, and GST did not add as per the desired growth. These have
shaken the system and market confidence. The rules are more stringent and do
not help the people. Foreign investors, though may be keen, too have
apprehensions, which partially the scrapping of the retrospective taxation may
help.
Corporate tax rates
were cut but it ignored the pivot, the individual. His taxes peaked during
2019. It hit the basic capacity of the individual to ride through a crisis
pandemic situation. At 42 per cent plus various cesses, India has the highest tax
rates. Gestures by foreign countries would not be enough to bring back that
confidence. Even now it would be welcome to cut the income tax rates as this would
boost the individual’s capabilities and benefit the entire economy as he
consumes more.
The lower interest
rate is playing havoc along with tax deductions on deposit hedging against
inflation that interest accrual does. This affects the developmental process
and to accelerate it, the interest rates
must be lowered.
Economic development is a complex matter. It cannot be done
merely by the government but needs involvement of all -- businesses and the
public in their various sphere of activity. The pattern may be the level of
cooperation and social discipline seen in ASEAN - South East Asian nations. The
country needs to ponder how the entire system is to be revamped.
The new ARC or the bad bank with the limited government
guarantee will remove Rs 22.14 lakh crore ($30 billion) NPAs from the system. From
now on, it will be under one entity resolution which would be easier, it is
being said. Bad bank is not all virtue. It started in 1988 with Mellon Bank,
which created bad bank to hold $1.4 billion bad loans. Others who have it are
Sweden following Swedish bank crisis in 1992, the UK, Germany, France,
Finland, Indonesia and Belgium and many others. The US sub-prime mortgage
crisis has been one of the worst global tragedies.
The global experience sees bad banks having excessive and
hidden fees, funds or cheques bouncing, most expensive debits, loyalty means
virtually nothing, large errors and mistakes and failing to honour the
promises. Though it separates the good funds from the stressed, it has not been
a solution to the NPA crisis. It may reduce bailouts but it is not ruled out.
It can create a new kind of market in dealing with stressed loans, but there
are apprehensions that asset buyers may resort to harsh unethical methods.
In a difficult situation new methods are likely, but it also
has to be remembered that all Euro-US models of capital market should not be
copied, as financial literacy is poor here and even in the most developed
countries. Moreover, the Indian society is far more complex and heterogeneous.
A complicated system may not be an ideal solution. Hiving off bad assets may be
practical but settling those or reselling those for realisation of dues is not
easy and would have many complications as each of the cases are different.
True, the nation will chart out its course, but it’s not easy and as of now no one has a clear idea
how it would function.
The country has to balance critical situations with
well-thought out measures. Demonetisation had done lot of harm and had given a big
jolt to the economy. These new steps may have the capacity to give further
jolts. While cajoling for foreign investments is a good idea along with ‘Make
in India’, a self-sufficient atmanirbhar economy would need much more.
---INFA
(Copyright,
India News & Feature Alliance)
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