"Everything's got a moral, if only you can find
it."
— Lewis
Carroll (English, 1832-1898)
Word for the day
Deleterious (adj)
Harmful; injurious, e.g., deleterious influences.
Malice towards none
It's Time for Rajni Sir to come into action.
Take over reigns of Tamil Nadu to save the State and her
people from unscrupulous politicians and wannabe politicians.
First random thought this morning
In this Post Truth world, I find there are four type of people:
(a) Those who have opinion on everything happening, or
not happening, around. Few care.
(b) Those who do not have opinion on anything
happening, or not happening, around. Few care.
(b) Those who people expect to have opinion on
everything happening, or not happening, around, but they refuse to oblige. Many
disappointed.
(c) Those who people expect to have opinion on
everything happening, or not happening, around, but they refuse to oblige. Many
disappointed.
Impact of twin balance sheet problem - not modest by any mean
The Economic
Survey does rather candidly admits the problem of bad assets and stressed
balance sheets. However, it inaccurately estimates the realized and potential
impact of twin balance sheet problem, in my view.
The Survey finds the impact of the problems to be modest. For
example, it reads—
"One reason for the modest consequences comes readily to
hand. In other TBS cases (e.g., in US, Europe, South East Asia), growth was derailed
because high NPA levels had triggered banking crises. But this has not happened
in India. In fact, there has not even been a hint of pressure on the banking
system. There have been no bank runs, no stress in the interbank market, and no
need for any liquidity support, at any point since the TBS problem first
emerged in 2010. And all for a very good reason: because the bulk of the
problem has been concentrated in the public sector banks, which not only hold
their own capital but are ultimately backed by the government, whose resources
are more than sufficient to deal with the NPA problem. As a result, creditors
have retained complete confidence in the banking system."
Firstly, it would be wrong to say, that it has not impacted the
growth. On like to like basis (old GDP series), the growth has structurally
moved down to 5-5.5% range from 7-8% witnessed during the credit boom period.
There is little visibility that the economy will return to higher growth
trajectory in near future. The Survey itself admits that "For some
years, it seemed possible to regard TBS as a minor problem, which would largely
be resolved as economy recovery took hold. But more recently it has become
clear that this strategy will not work. Growth will not solve the problems of
the stressed firms; to the contrary, the problems of the stressed firms might
actually imperil growth."
Employment conditions have worsened materially and real wages are
just not growing. In spite of strong focus of the government on this, there is
no visibility that employment conditions will improve anytime soon.
Secondly, private sector capex has collapsed. Despite moderation
in interest rates in improvement in liquidity conditions, the businesses are
showing no confidence in adding capacities. Average credit worthiness remains
poor. Capacity utilizations are persistently close to 70-75%.
The Survey fails to mention the massive wealth destruction effect
of the problems. Corporate valuations have collapsed, in many cases by over
90%. Realty prices have crashed in real terms. Household debt has gone up.
Education loan up with low employment growth visibility, a new stress area is
emerging.
As the Survey itself admits, the authorities have little clue as
to the solution. The solutions implemented so far have failed miserably. "Two
dozen firms have entered into negotiations under SDR, only two cases have
actually been concluded as of end-December 2016. And only one small case has
been resolved so far under S4A."
...to continue
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