She encouraged Indian to continue with steps to revive the economy in 2021 and to accelerate the country’s economic transformation.

The IMF Managing Director during a global media roundtable on Thursday predicted a less bad outlook for India in the upcoming World Economic Update due to the steps taken by the country, reported PTI.

“When I called on everybody to stay tuned for January 26, that applies very much to India. You would see a picture in our update that is less bad. Why? Because the country actually has taken very decisive action, very decisive steps to deal with the pandemic and to deal with the economic consequences of it,” Georgieva said.

The International Monetary Fund is scheduled to release its World Economic Update on January 26.

Talking about India, the IMF chief said it was a very dramatic lockdown for a country as big as India with a population of 1.2 billion and people living in close clusters.

“Then India moved to more targeted restrictions and lockdowns. What we see is that that transition, combined with policy support, seems to have worked well. Why? Because if you look at mobility indicators, we are almost where we were before COVID in India, meaning that economic activities have been revitalised quite significantly,” she said.

“What the government has done on the monetary policy and the fiscal policy side is commendable. It is actually slightly above the average for emerging markets. Emerging markets on average have provided six per cent of the GDP. In India, this is slightly above that. Good for India is that there is still space to do more.. If you can do more, please do,” Georgieva said.

The post IMF praises India’s efforts in reviving economy after COVID-19 pandemic appeared first on The Gulf Indians.

The Nifty closed above 11,600 points again on September 16 but did not rise above this level at any stage of trading on September 17. 11,587 is the highest level in the day’s trade. The Nifty opened below 60 points following the fall in the US market. Fluctuations in the market have intensified. Similarly, the Nifty fell by 11,489.50 points to close above 11,500. The stock closed at 11,516.

The Sensex, which had closed at 38,979 points, dropped to a psychological level of 39,000 points. The day’s high was 39,234.81. It had fallen to 38,926 points at one point during trading.

Most of the 50 stocks in the Nifty were down . Thirty-eight stocks in the Nifty gained while 12 stocks lost ground. Hindalco, Tata Motors, Shree Cements, Bajaj Finserv and Adani Ports were the biggest losers in the Nifty. Hindalco fell 4.33%. Shares of Tata Motors, Shree Cements, Bajaj Finserv, Adani Ports and Powergrid lost more than 2%.

Dr. Reddy’s Laboratories, HCL Tech, Zee Limited, Maruti Suzuki and Infosys were the top five gainers in the Nifty. For the second day in a row, Dr. Reddy’s Laboratories gained over 40 per cent. Russia’s Sovereign Wealth Fund has entered into an agreement with Dr. Reddy’s Laboratories to test and distribute COVID vaccine. The stock is at a 52-week high.
HCL Tech and Zee Limited gained more than 2 per cent each.

Pharma and IT stocks were the main gainers on the day. Bank and metal stocks, meanwhile, fell. The Nifty Metal Index lost 1.37 per cent.

The post Sensex down 323 points appeared first on The Gulf Indians.

Compared to the first quarter of the previous year, the GDP has declined by 23.9 per cent. The last financial year has seen a slowdown in growth. With the advent ofCOVID, growth had disappeared and the recession had started.

Even before the corona attack, our economy was in a weak state. Due to the lock-down following COVID, economic activity fell sharply and the economy was hit harder. The country experienced a bigger economic downturn in the first quarter than predicted by various studies. Only the agricultural sector has seen growth. The economy is becoming more dependent on agricultural activities than usual. The good monsoon has paved the way for the growth in the agriculture sector.

According to SBI, the country’s largest bank, the country is expected to experience a 10.9 per cent recession in the current fiscal. The report predicts a slowdown in the July-September quarter.

The central government needs to address this issue by recognising the reasons why the economy has been weaker than expected despite the expected slowdown. Even before COVID, the state of the economy was bad. We have been facing a situation where the economy has been struggling for a few years now due to the ban on notes and the shortcomings in the implementation of the GST. Last year saw the highest unemployment rate in the last 45 years. The corona came like thunder out of the clear blue sky at a time when the labour market and the small business community were in crisis. Prolonging the lockdown has exacerbated fundamental financial problems.

The endless opportunities for small businesses that are unique to India are disappearing. Cosmetic interventions are not enough at a time when wartime solutions need to be found to revive the economy. Interventions are urgently necessary to move the market, which has lost grounds due to the repercussions and lockdowns created by COVID-19.

The Prime Minister’s ‘Atmanirbhar Bharat’ announced in May was claimed to be a package of 10 per cent of GDP. But the new expenditure from the government for this package is only Rs.1.5 lakh crore. Even when corporate tax cuts were made last year, the government spent Rs.1.45 lakh crore. That’s about the same amount as government spending on the ‘self-sufficient’ package. That is, only 1-1.2 per cent of GDP. With such a plan, the current severe economic downturn cannot be eliminated. We can only recover from the recession if the government initiates a strong package with a long-term vision.

The post Concerns are growing as the economy weakens appeared first on The Gulf Indians.

Evolutionary theory that went astray

The world of globalisation was very different from the days when economies of two opposites, capitalism and socialism, existed and their mutual purchases were very limited in the context of the Cold War. This change was beyond the comprehension of those who held socialist views and practised opposition to capitalism as a religion. The reactions of such people at that time to what could be called a turning point in history were strange and irrational. For example, at the time of the collapse of the socialist nations, Communist thinker EMS Namboodiripad said: “Socialism cannot return to capitalism as man cannot return to the ape.”

The observation of Namboodiripad was based on Marxian mathematics on the evolution of economics and history. But that socialist bloc collapsed, proving that the growth from feudalism to capitalism, from capitalism to socialism, and from socialism to communism was only a concept confined to the book ‘Social Darwinism’ and that it was impossible to put into practice.

Man did not return to be an ape; but socialist countries abandoned the government-controlled economy that had existed until then and embraced the free market economy. (In fact, countries such as Russia did not return to capitalism, but abandoned socialism and embraced capitalism for the first time.

History with no end

Yoshihiro Francis Fukuyama, historian and thinker, described the transition to a new world order, ending the Cold War between capitalist nations and socialists, as ‘the end of history’. In his book, The End of History and the Last Man, Fukuyama observes that Marxian theory of the evolution of human society has become irrelevant and that liberal democracy has proved to be the most acceptable final social model for human society. He said that humanity have witnessed the end of the ideological dimension of human society and the pervasiveness of Western liberal democracy as the ultimate form of government.

But three decades after the end of “history”, there is a worldwide debate about the crisis faced by capitalism. At the same time, liberal democracy is in crisis. COVID-19 put this political and economic system in even greater danger. At a time when the spread of COVID has become one that adversely affects the dynamics of the free market, the far-right political forces who have anti-democratic genes ingrained in their genes see it as an opportunity for dominance. Is it any accident that we see economic downturns and the decline of democracy coinciding in many parts of the world including the United States, the United Kingdom, Russia and India.

Even before COVID-19, we faced a world order that was very different from the global context in which Fukuyama actually described the end of history. It is a very strange and paradoxical one.

We were witnessing a competition between the free trade model of capitalism in countries, including the US, and the government-controlled model of capitalism in China before COVID. Although Fukuyama claimed in 1992 that Western liberal democracy was becoming ubiquitous as the end of the ideological dimension of human society, what actually happened around the world was not such an evolution within the set boundaries of certain parameters.

China, which aims to become the world’s largest economic power, is ruled by the Communist Party and is a government-controlled capitalism. Over the past few decades, China has become one of the fastest growing economies in the world, proving that the notion that Communist rule and capitalism are incompatible with each other is wrong. In the same decade since the collapse of the Soviet Union, China has made it clear that it will never tolerate the mass thirst for democracy by massacring young people in Tiananmen Square. Much water has flowed down the river since.

China’s dictatorship was further strengthened and now the the president could remain in power until the death as in a monarchy. At the same time, China has become one of the most effective free market economies under government control.

The ideological war between the two political streams, known as the Cold War three decades ago, ended as a result of the democratic thirst of the people in the socialist countries. In the language of Fukuyama, the end of history. But the complex picture of today’s world shows again and again that we cannot put an ‘end’ to history so easily. Politically, liberal democracy is the most acceptable final model for human society, but China is still far behind. If the free market economy is the most acceptable final model, then China is far ahead.

The country where democracy does not exist has used capitalism most effectively for economic growth. China’s government apparatus aims to overtake the United States to become the number one economic power by 2050. But the unique global environment created by COVID-19 has put up huge obstacles on the path to that goal.

The future of history

The United States and China have come to terms with the political and economic tensions that existed between the United States and the Soviet Union three decades ago. One of the major changes of the COVID era was that the whole world turned against China, which was moving forward with a clear agenda of overtaking the United States as an economic power. The road to China’s goal of becoming number one in the world by 2050 has become extremely difficult.

There is a widespread perception that the health care system created under the capitalist model will not be capable enough to deal with the global epidemic at the same pace as COVID. It has been described as a fall of capitalism. At the same time, the world has to be aware of another great danger. In fact, the root of this failure lies in a dangerous cocktail that the world has never seen before, with a totalitarian and government-created free market economy.

While it is true that the health care system in the capitalist countries has not been able to prevent the dangerous march of corona, if the disease had erupted in a country where democracy existed, it would have taken precautions to prevent its spread at the very outset. But China had a lot to hide from the world and its own people. It was not ready for any transparent disclosure that would affect their financial goals. In fact, the COVID period revealed the dangers of dictatorship rather than the limitations of capitalism.

In 2018, addressing a world context in which the possibility of a return to socialist thought in the face of the challenges of liberal democracy was being explored, Fukuyama said in an interview, “In the light of two-and-a-half decades of new experience, the potential structural threat to liberal democracy is not that of socialism, but that of China’s state capitalist model. The Chinese openly claim that their model is superior because it can guarantee stability and growth in the long run rather than democracy. If it is bigger than the US in the next 30 years, the Chinese people will be richer and the country will stand together, then we would have to concede that their stand was the right model.”

But now it is not easy to get away with that claim anymore. It is quite doubtful whether China will be able to tell us that this is the way forward. The realisation that over-reliance on China is putting themselves at risk (not only emotionally, but also by the nations of the world recognising that it is a problem of long-term economic stability) has led the whole world to move towards a trade war with China.

The word trade war, familiar to the US world, is now included in their dictionaries all over the world. Prior to the coup, almost all countries except the US believed that a trade war between the US and China would adversely affect the global economy and should be avoided. But after the advent of COVID, these countries are choosing the path of a trade war against China (even if they do not know how long it will last and what price they would have to pay).

Of course, the post-COVID era will be a new one full of experimentation for a free market economy. And as countries move towards a de-globalisation, market contraction will occur. We are deliberately preparing to close many of the windows that were previously open. At present, we are aware of its long-term effectiveness. But what we can do with optimism is to put aside the ambitions of overgrowth and see the recession and trade war as a healthy corrective step.

The post ECONOMY WATCH appeared first on The Gulf Indians.

Rating agencies and financial research institutes estimate that Indian banks will have to raise between Rs.15,000 crores and Rs.37,500 crores over the next two years in the wake of the impact on the COVID-19 economy. They point to the need for additional capital mobilisation in view of the potential for banks’ non-performing assets to grow and growth to slow.

Private banks have already moved into new transactions to raise deposits. Which way will the public sector banks, which been generally weak and, to say it colloquially, in a pregnant state’, resort to raising capital?

Leading private sector banks such as Axis Bank and Kotak Mahindra Bank are actively pursuing the mission of attracting investments. Carlyle Group, a global private equity firm, has invested Rs. 7,500 crores in Axis Bank. Kotak Mahindra Bank has raised Rs.7,460 crore through QIP (Qualified Institutional Placement).

At the same time, raising funds for public sector banks is not easy. Experts point out that public sector banks will need an additional Rs.1.5 lakh crore in capital. The government, which is facing a high fiscal deficit due to the revenue drought created by COVID-19, has limited support for public sector banks. The government has invested Rs.3.5 lakh crore in public sector banks in the last five years. No additional capital has been allocated to public sector banks in the last budget or the recently announced financial package.

In such a situation, one way is to mobilise investment through the capital market. The money raised by the government through bonds can be deposited in banks. The government has already resorted to this method. But the question remains as to how much money can be raised in this way from a market with very limited liquidity.

Another way is to privatise public sector banks. Years ago, a Reserve Bank committee headed by former Axis Bank chairman P.J. Nayak had suggested that reducing the government’s stake to less than 50 per cent was a way to increase the efficiency of public sector banks.

Public sector banks are in a situation where they are prone to sinking like a ship due to over-indebtedness and loss-making cracks. To prevent them from sinking, the government can take steps to sell the shares while maintaining a significant shareholding so as not to lose control. Bringing professionals into management from the private sector can also be a cure for the disease of mismanagement.

But even if the government is willing to sell the shares, it remains to be seen how much money can be raised through it in the current situation. Public sector banking was one of the worst hit by the stock market crash. The share price of public sector banks is currently much lower than the book value. Their share price is only 0.3 times to 0.8 times the book value. At the same time, the value of shares of private banks is still high. For example, Kotak Mahindra Bank trades at 4.7 times its book value.

It is difficult to raise the required capital through the sale of shares of public sector banks which have been devalued due to the decline in the market. Currently, even SBI, the largest public sector bank, has a market cap of just Rs.1.71 lakh crore. Shares of most public sector banks are trading at the lowest level in the last seven to ten years.

Another way is to set up an institution called ‘Bad Bank’ and redistribute the entire credit burden of the banks to it. A bad bank is an institution set up to clear the banks of all their bad debts. Bad bank will handle the burden of bad credit from then on. The only job of a bad bank is to reorganise assets. Consideration should be given to the use of asset restructuring options in the event of a long delay in the completion of the proceedings under the Pauper Act of the National Company Law Tribunal.

The job of the bad bank will be to reorganise the assets only. Consideration should be given to the use of asset restructuring options in the event of a long delay in the completion of the proceedings under the National Company Law Tribunal under the Pauper Act.

By transferring the bad debt to an institution like Bad Bank, the banks can replace the old canvas and run the loan business as smoothly as painting a new one. The old losses can be offset by the profits from the loan business. While bad credit is not eliminated, technically removing credit from the balance sheet will give banks more time to resolve issues.

In countries such as Sweden, Finland and Ireland, the practice of setting up bad banks to address the credit crunch of financial institutions has been adopted. In Asia, South Korea and China have adopted this method.

But the question remains whether the government will have to rely on the exchequer for the capital to create the new bad bank system. One way is to issue bonds for bad bank capital. Another important hurdle would be the valuation of the assets to be transferred.

The post How to save public sector banks? appeared first on The Gulf Indians.