GDP Growth – Booster – Windfall – Steriod
GDP Growth – Booster – Windfall – Steriod
What is the prescription when a runner who is faster than the rest slows down? Well it’s difficult to find a precise medicine. Indian economy which was boasting of having fastest growth in the world, is gradually finding it difficult to keep the pace.
First quarter growth clocked mere 5%. Having a bearing for the last few months growth was expected to be slow but something like 5 per cent was unexpected and shocking to all the market participants. Agriculture, manufacturing and services all three have contributed to the slowdown. No doubt that a strong base effect of the last year (8 per cent) has made the impact felt even more.
An economy which has embarked on ambitious aim of doubling farmers’ income is struggling to keep its pace as well as reputation. The slowdown is such massive that manufacturing grew just 0.6 per cent and agriculture grew at a paltry 2 per cent resulting in a slowdown demand.
Spate of measures on successive Fridays from the North Block ,spearheaded by the Finance Minister herself , was music to the ears and there was an interlude in the form of windfall of Rs 1.75 lakh crores from the Mint Street while 100 per cent FDI in single-brand retail and commercial coal mining played the chorus.
It revealed lots of traction between the government and the stakeholders. It showed that the government is willing to listen to the ground .But the party is definitely not on and the problem of facing the music has begun. Bumpy ride ahead and it is apparent that the slowdown is not mere cyclical but big bang reforms are required to tackle the structural constraints. Fiscal discipline has been a hallmark of this government which is in its second term.
Additionally plan to go far foreign currency borrowing through sovereign bonds makes it imperative to have tight fists. There was a big riddle in everyone’s mind about the source of funds when government amplified Pradhan Mantri Kisan Samman Yojna immediately after the victory in parliament election. Mint Street resolved the mystery but Dalal Street which is few blocks away is still observing the quandary between bulls and bears. Increase in surcharge on HNIs and FPIs was a timely trigger for the markets to go southwards. So government announced rollback of enhanced surcharge on levied in the Budget, lifted self-imposed ban on purchase of vehicles by government departments, and enhanced deprecation by additional 15 per cent on vehicles acquired from till March 2020, set a target of 30 days for all pending refunds to be paid to small business units and introduced repo-rate based loan schemes. “Wealth creators of the nation will get due respect” was one of the major announcements made by the Finance Minister Ms Nirmala Sitharaman.
In August 2018, the Cabinet had approved Framework for Consolidation of Public Sector Banks (PSBs) through an Alternative Mechanism (AM). The aim of the same was to facilitate consolidation among the nationalised banks for creation of strong banks and improve their competitiveness and efficiency. It started with the consolidation of three banks then with Bank of Baroda as an Anchor bank. .Government followed up in last week with the announcement of consolidation of ten public sector banks to be merged into four. Under the scheme of amalgamation Union Bank, PNB, Canara Bank and Indian Bank are given the status of Anchor bank and six other banks are to lose their identity. With this operation total public sector banks gets reduced to 12 from 27 existing in 2017.
Government intends to provide quick re-capitalisation to the banks, so the steroid is still made available. Public sector banks are now allowed to do succession planning; they can hire Chief Risk Officer and can pay sitting fees to independent directors. What is expected now is additional fiscal spending and further reduction in repo rate from the central bank. This will benefit consumers to borrow to buy new houses, vehicles and durables. The monetary easing coupled with the festive season and satisfactory monsoon is expected to improve and pick up the growth in second half.
Will the economy come back on track? Will it provide more employment opportunities and boost spending? So the booster of reforms, Windfall by the Central bank of Vitamin M and steroid of capitalization will work? So the focus moves to the Wealth Creators now. Is the growth rate is likely to be around 6.5% to 6.75%.To find an answer, we need to wait for the third quarter of the financial year to end.
- UDAY TARDALKAR
CORPORATE CONSULTANT AND TRAINER - Pc:google