On the other side of the alley: things collapse; The center can not hold

Stock prices have fallen so much that the indices are trading at their level of 15 months ago.

There is an old adage that "misfortunes do not come alone". It seems that the gods do not smile at the Indian economy.
Look at the bad news that is raining on the economy:

– Stock prices have fallen so much that indices are trading at levels such that they were at 15 months

– The Foreign portfolio investors withdrew 35,406 crore from Rs this month until October 25th. This year, so far, the output has been about 96,000 crore. The rupee was in free fall and, among the developing economies, it is one of the weakest currencies against the US dollar. It has depreciated by 16% in 2018 and could fall further.

– The price of crude oil (Brent) reached $ 77 per barrel. Global uncertainty, particularly the turmoil in the Middle East, could lead to further price increases. Near-daily price increases for gasoline and diesel have imposed an intolerable burden on the consumer.

Rupee Falls, Rising Prices

– The depreciation of the rupee and the rise in oil prices produced a big hole in the pockets of consumers. As a result, the consumption of other goods and services is depressed.

– Precipitation has been below average this year. About 36% of the districts reported a significant rainfall deficit.

– Farmers are in revolt Market prices for most agricultural products are below the stated minimum support prices (MSP). Only a handful of states have shopping centers and insufficient numbers. Thus, few farmers receive the MSP.
l Merchandise exports have been disappointing over the last four years and have not exceeded the level of $ 315 billion recorded in 2013-2014. In the first six months of this year, it was about $ 160 billion.

A low investment, a rare credit

– According to the Monitoring Center of the Indian Economy (CMIE), new investment proposals only 150,000 crores of rupees were announced in July-September 2018, well below the long-term average. The CMIE data also show that 5,394 projects are at a standstill.

– Credit growth to the industry struggled to reach the 1.93% level in August 2018. Over most of the current fiscal year, growth in year-over-year was barely 1%.

– Banks' non-performing badets have broken through the Rs 10,000,000 mark. Adding to the woes of the financial sector, an NBFC of considerable importance, Infrastructure Leasing & Financial Services Ltd, has collapsed, casting a dark shadow on the entire financial sector. Insolvency cases are evolving at a snail's pace and no big deal has been resolved within the stipulated 180-day period.

– The employment situation is bad and may worsen. The IEIC indicated that the unemployment rate was 6.6% in September 2018, up from 6.3% in August. It is at this time that the rate of activity has fallen from 46 +% (in 2016) to 43.2%.

Macroeconomic Instability

– The fiscal situation is worrying. With a budgeted growth of 19.15% in net tax revenues, the growth rate between April and September 2018 was only 7.45% compared to the same period last year.
To achieve the budgeted number, net tax revenue must increase by 28.21% over the remaining months of the current fiscal year, which is almost impossible.

– The disinvestment program is in stalemate. To achieve a budgeted goal of Rs 80,000 crore, the government has so far been able to collect only 9,686 crore.

– The budget badumes that public sector companies will give the government a dividend income of 1.07,312 crore this year. By obliging to absorb 1 Rs per liter of petrol and diesel, the oil companies absorbed 3 500 crores of rupees in the month of October to December. As a result, their dividend distribution will be lower. The same goes for low-income countries that they abandon IL & FS.

– The government advocates programs that are grossly underfunded. Ayushman Bharat Yojana, an insurance-based health care program, is one example. The goal is to cover 10 families of crores (50 people) but the allowance, up to now, is only 2,000 crores! Other underfunded programs are MGNREGA, Prime Minister Awas Yojana, Drinking Water Mission, Swachh Bharat, National Health Mission and Gram Jyoti Yojana.

– The current account deficit at the end of September 2018 is estimated at $ 35 billion. There is no hope that it will shrink; on the contrary, the year can end with 80 billion Canadian dollars, or about 3% of GDP. The measures announced by the government last month were weak and ineffective.

– Pressures on FD and CAD will drive interest rates up. Bond yields have hardened. The RBI seems inclined to raise key rates. If, as feared, borrowing rates rise, investors and consumers will suffer, which will reduce economic activity.

All of the above, and many more, will require competent economic advisors and economic managers. After the release of Drs Raghuram Rajan, Arvind Panagariya and Arvind Subramanian, no internationally renowned economist has advised the government. Among economic managers, the less we say, the better. They are busy defending the indefensible and writing blogs.

I am reminded of a verse from WB Yeats: "The Center can not stand".

Website: pchidambaram.in
@Pchidambaram_IN