V-shaped, U shaped or W shaped economic recovery is being discussed and thought over for the global economy and India. Well how much loss you can buy decides the SIGN of the economic recovery. India well doesn’t have pockets to buy losses. The Rs.20lakhs package is 10 years vision plan for India and not a plan for buying the losses. Even the funding proposed to be given is in the hand of the bankers hence under the table comes into rescue. I am not getting into the debate of criticizing the policy as a hoax but it is a hoax of current time since for future I need to survive and not to die in starving.
Removal of the lockdown for a country like India spooks more delay and longer lockdown. Many leadership and the present government will face the hardship of challenges of such decisions. Half-hearted effort leads to more pain. Re-opening and travelling are two different topics hence they should have been kept far but nope we pulled them together as twins. More the numbers increases for India it will have more hard landing.
I am not making the airport in one day, neither am I making agri output in one day. I am struggling to pay salaries, keep jobs, keep my business and losses managed. Now where does Rs 20lakh fit under the current circumstances?
If we break up the package we find
- Liquidity Measures 38%
- Gurantees-19%
- Credit Facility-19%
- Others -15%
- Actual-9%
The moratorium is itself a burden for the MFI and NBFC since their earnings come under risk as liquidity is delayed for these companies. HFC will be facing more problem of NPA and deliquesces on getting timely payback. Small NBFC and MFI’s will struggle hence the impact will be larger on the business and other areas. Now NBFC will suffer from working capital crisis and that package will be dependent on the willingness of the Banks. This shortage of working capital will result in more problem with directional less attitude.
Fiscal deficit will be above 10% taking the state. It might rise if the ACT of God increases the burden for the states. Monsoon and flood are the two things which will push the debt burden for the central government.
Low interest rates do not bring demand either borrower’s line up when the corporate does not know where to deploy the funds. Falling business revenues, results to pressure on profitability and meeting obligation of debt papers. Re rating is another nightmare which will fall soon. More pressure is on the Mutual Funds and Bonds held by every corner of the world. Liquidity alone may not save the downfall. The weaker Balance sheet may not get funding as expected or proposed in the package.
GST revenues and advance tax numbers will be the lowest side which creates more pressure on the central bank books. Deficit financing itself will be difficult when there are few takers. I will not be surprised if tax numbers turn out to be negative.
Exports will not be picking up now hence manufacturing and utilization of liquidity do not happen. Managing the loss is now its challenge. Will the Banks and NBFC will provide liquidity to buy losses? Every company is managing its balance sheet and similarly household is also managing its balance sheet by cutting expenses. The more expenses are cut down more the consumption and demand come down.
Corporate and Household both are working hard to revive the savings level to the Pre-covid phase. This gives all answer to the demand outlook from both corporate and household. The capital which met depletion will either never come back or it will be delayed by next 2 to 3 years. The private sector is more focussed towards managing the debt rather paying salary. Jobs which are lost are being replaced by less manpower and by technology. White-collar jobs will be contractual now. Many companies are already wiped out and many are on the verge.
OMO and rate of interest cut down stories will keep revolving and will happen but will little benefit to the ground-zero levels. Banks FD deposits will fall hence they will keep in the cross treasury to earn since they are more scared of NPA. Agri output and MGNREGA are being focussed but with floods and recent insect problem mounts the loss for the economy. I have a question and seeking the answer-Who will provide work and how many will work under the pandemic and social distancing under the MGNREGA? Will you bring those people to work and how? Why only 40000 cr when we all know that urban employment is delayed significantly. Last which alphabet will come for recovery
I cannot predict but all I can say it is now an easy game. Picture Abhi Baki Hai.
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