Distress signals across all sectors : The Tribune India

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Distress signals across all sectors

IN cricketing analogy, a batsman must never take his eyes off a short ball to avoid getting hit on the body by the rising ball.

Distress signals across all sectors

Cumbersome GST was imposed on industry gasping from DeMo choke. Agencies



Sandeep Dikshit in New Delhi

IN cricketing analogy, a batsman must never take his eyes off a short ball to avoid getting hit on the body by the rising ball. The extended election season, preceded by the attention to Pulwama-Balakot, meant that there was no steady hand on the economic tiller for quite some time. While the sectors silently suffered, Prime Minister Narendra Modi held a comprehensive assessment of the economic situation with Finance Minister Nirmala Sitharaman on August 15, nearly three months after Modi 2.0 had taken over.


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The distressed sectors have already widely advertised their poor health: automobiles, real estate, formal and informal banking and telecom. Lurking in the background are the equally distressed power, steel and mining sectors. Their woes were topped by a debilitating demonetisation and policy uncertainty. A cumbersome GST was sprung on the industry while it was still gasping from the guillotine choke of notebandi.

The Modi government has walked into all the ills that it accused the previous UPA government of imposing on the people. The August 15 Sitharaman-Modi meeting could end this indifference. The economic understanding on which the government is working is that the downturn is because of several vicious cycles working all at once. That it is still not structural. This was reflected in Sitharaman’s sectoral approach of consultations with the industry from August 5 to 10.

Policy mismatch 

The common man may be enthralled by the “hard” state concept ushered by PM Modi. The reorganisation of J&K and scrapping of Article 370 are the latest piping on the shoulders of the Modi government to add to the decoration of the surgical strikes and Balakot bombing. But for the industry, this government has been anything but decisive on the economic front.

The Insolvency and Bankruptcy Code has undergone several changes, the mess in GST and its user-unfriendly approach has been adequately highlighted by the latest CAG report even though the Government withheld considerable material.

The distress of the automobile sector was compounded by the budget that imposed a heavy duty on automobile imports, while demand was suppressed with the imposition of a Rs 2 cess per litre on diesel and petrol, which translated into a Rs 4 hike at the pump. Any chances of confidence returning to the sector were wiped out by the undue emphasis on electric vehicles despite the fact that raw material supply in the form of lithium and cobalt or the industries that will process them into finished products are still plans on paper.

The direct job loss, doubtlessly exaggerated for this sector which is no saint, is estimated at 3.5 lakh. But this figure may triple since the contagion has passed on to the ancillaries segment. Not only has the ancillary sector been hit by low domestic demand, its exports have been impacted by a milder worldwide slowdown in the auto sector.

The other sector in intensive care is real estate and housing. The crippling effect of demonetisation was followed in quick succession by the double whammy of RERA (Real Estate Regulatory Authority) and a faulty GST. RERA no doubt is girded by good intentions but the clean-up drive was foisted on the real estate sector when it was already wobbling from demand contraction. As many as 13 lakh flats all over the country await buyers and double that number are half unfinished. The impact on low-end job generation for people escaping the agrarian crises needs no stating. The GST on building construction material and sale of houses further knocked the bottom out of any remaining viability. The widely-advertised quick silver reflexes of the government were nowhere in sight. It took a full two years for their removal and still many irritants remain.

Why the downturn?

Not counting the agriculture sector where defaults are high, the tanking of auto and housing sectors meant that those who lent to it — first, the conventional channels and then the non-banking finance companies (NBFCs) — rang up huge losses. Two NBFCs alone — IL&FS and DHFL — are in the red to the tune of Rs 1.8 lakh crores.

  The downturn is because of a fall in private consumption: auto and real estate sectors were hit the most. The coming months might reveal the hollowing out of the private education and health sectors with an added knockdown effect on banks and NBFCs. The reason is a fall in personal savings brought about by unemployment at a 45-year high, the impact of indirect taxes on the personal pocket, the distress in the rural economy and a slow rise in wage packets. This is not counting the non-performing assets of the fat cats in the industry, which are said to have leapt past Rs 10 lakh crore.

Averting Armageddon

The government’s public borrowing has also increased, putting a squeeze on the capital in the market. As a result, the PM was compelled to urge the banks to transmit RBI’s four successive interest cuts to borrowers.

Now that J&K and the long-lasting additional commitments on the border will force the government to borrow more, grand announcements this time can no longer be vacuous. If sectoral difficulties coalesce into a structural problem, the economy can slide into a recession with an adverse effect on the government’s strongman image, which requires a healthy surplus to convert it into reality on the ground.

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