By Vivek Pattnayak in Bhubaneswar, November 20, 2017: A certain section of media has gone ecstatic stating that Moody’s bonds with Modi’s reforms agenda and has predicted that it will be mood changer for the country. The rating agency Moody’s Investors Service recently upgraded India’s sovereign bond from Baa2 from Baa3. Prior to that the World Bank’s ease of doing business index of country had made a jump by 30 positions. This undoubtedly gives an occasion for the government to feel good.

Recently, Finance Minister in Singapore said that India would soon become the most attractive destination while acknowledging temporary blip due to massive reforms measures. The Industry Minister has predicted that Indian economy would grow from US$ 2.5 trillion to US$ 5 trillion in next few years although Prime Minister in few months of coming to power had exhorted the country to reach a much higher target. Flaunting index of ease of doing business, a large investment has been sought for from Nestle, Unilever, Pepsi and Amazon. While optimism is necessary to bolster the confidence of the nation it will be prudent to be realistic and see the ground realities.

Meanwhile, manufacturing Purchasing Managers’ Index (PMI) stagnated in October. Overseas demand for Indian goods dipped to the greatest extent since 2013. The current account deficit has more than doubled to 1.5% of GDP equivalent to US $40 billion. There is apprehension that the government would not be able to meet the target of fiscal deficit as envisaged under Fiscal Responsibility and Budget Management Act.

Retail inflation has increased since August. In October it is 3.8% which is seven months high.Prices of food items made a movement upwards onion prices having made most spectacular rise. Industrial out put grew lower than expected. Car sales in October have gone down. Many steel companies are battling insolvency. Oil price is rising and highest since 2015.

Assocham has shown red flag as it might affect import bill and exchange rate. Talk of reservation in private sector has been frowned upon by the Chamber. Dun & Bradstreet y-o-y business confidence index declined. Coal India’s profit has tripped. Social spend of PSUs has gone down in 2016-17. Non-Performing Assets (NPAs) of the banks have gone from Rupees 2.7 lakh crore in March 2015 to Rupees 7.3 lakh crore in June 2017.

ICRA Ltd – an Indian independent and professional investment information and credit rating agency, has clearly mentioned that many infrastructure projects are struggling with their highly leveraged balance sheets. Foreign exchange reserves recently declined. Initial Public Offerings (IPO) of New India Assurance could be subscribed only after huge investment from Life Insurance Corporation (LIC) on the last day does not bode well for the country.

Although many experts predict rosy future ahead, the government must have to maintain financial discipline and ensure drastic improvement in banks’ health.  Temptations of politicians in democracies to resort to financial profligacy before polls must be kept under restraint.

Obsession of our top leaders to focus on large corporate behemoths – domestic and foreign, for investment is neither wise nor pragmatic when one can easily decipher absence of animal spirit globally and nationally.  Ability to take decision, sometimes risky, in the public sector including banks has waned after much publicized scams.

The real challenge before all governments in India is creation of jobs. Maximum opportunity to create jobs in the country is in MSME sector which required minimum fund. Risk of loan becoming NPA is less. Young India has plenty of entrepreneurs with animal spirit, innovative ideas and risk-taking aptitude in both urban and rural area to start new ventures.  They need seed capital, short and medium credit, clearances without much bureaucratic hassle with occasional handholding and mentoring by promoting agencies and monitoring by financial institutions. Under mandatory corporate social responsibility (CSR), angel funding can be arranged to provide seed capital.

Recently, Secretary, MSME has very rightly suggested the necessity of dovetailing this sector with Village and Khadi industries, and going beyond the national frontiers. The Finance Minister has explicitly stated that banks will be funded to finance this sector. Revival of State Financial Corporations and Industrial Investment Corporations, now somnolent or moribund, and their organic link with MUDRA will be one way of going forward. All these steps will create genuine climate of business confidence and vibrant investment mood.

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swadesh sundar patnaik
swadesh sundar patnaik

Brilliant analysis. Good caution not to be carried away with Moody’s projections.Financial discipline and improvement in bank’s health cannot be ignored.Creation of jobs should be the ultimate test of governance .