"To have a great idea, have a lot of them."
—Thomas A. Edison (American, 1847-1931)
Word for the day
Calliopean (adj)
Piercingly loud; resembling a calliope in sound, e.g. a
calliopean voice.
Malice towards none
Pakistan threatens to boycott US!!!
Well....hmmmm....duh.
First random thought this morning
Out of the five states currently going through elections, Manipur has
virtually stayed out of the national discourse. While Uttrkhand and Goa have
seen multiple opinion polls, psephologists have completely avoided the north
eastern state. To me it means three things:
(a) In spite of all brouhaha over mainstreaming of north
eastern region, the work on ground still remains mostly notional.
(b) Many of opinion polls might have been done on
phone and Google.
(c) In this digital age also, the intensity of
national news is directly proportionate to the proximity to Delhi. Most know
Arvind Kejriwal. Few know Pawan Chamling.
Change the development paradigm
Three things are
quite clear to me, insofar as the problem of stressed corporate balance sheets
and poor asset quality of banks are concerned:
(a) Key infrastructure areas like power, telecom,
roads, and mining etc are suffering from poor capacity utilization (due to low
demand); and material number of incomplete and delayed projects (leading to
substantial cost escalation impacting the midterm viability of projects when
completed). This stress is not likely to ease in next couple of years at the
least. On the contrary, there are signs of stress deepening in telecom and
power sector. Not certain, but implementation of GST might open new areas of
stress in MSME sector.
(b) There is little visibility of private sector
capital formation (capex) registering any notable growth in next couple of
years at the least.
(c) The outlook of capacity enhancement at
public sector banks', which have historically supported risk appetite of private
enterprise, continues to be clouded. The implication of bank officials in many
cases of fraudulent dealings has impacted the morale and hence risk taking
capability of bank managers. There are sufficient indications that the
government wants them to raise capital for growth at market terms.
Under these circumstances, the traditionally acceptable
debt:equity mix of projects with longer gestations and unpredictable revenue
models would need to be changed. The infra projects may need to be funded more
by equity and less by debt; just like the start ups in digital arena.
"The Economic Survey 2015-16 emphasized that
addressing the stressed assets problem would require 4 R’s: Reform,
Recognition, Recapitalization, and Resolution."
There has been material progress in Recognition of the stressed
assets. But on the other three, there is little progress.
In my view, however, these 4 R's would only solve the problem
temporarily. Like the way, it did in mid 1990's. The other things remaining the
same, the solution will last only till the next credit boom. A more sustainable
solution will be to Recognize the economic reality of the country and Reform
the development paradigm.
The government should build and provide the enabling
infrastructure for the growth. This should include the physical infrastructure
like roads, public transportation, power, water, and ports etc; and the social
infrastructure including health, education, sanitation and security. The
development should be done by empowered public authorities keeping in view the
global standards and practices. The resources for development should be raised
through higher but equitable taxation.
For example, highways could be funded by annual tax on vehicles
(no toll on roads); solar power installation on road sides; higher cess on
fuel; etc. Similarly, the social infrastructure could be funded through estate
duty; higher property tax; higher sin tax; payback by students etc.
The payoff for higher taxation could be through meaningful freedom
to the private entrepreneurs (including foreigners) to do business.
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