By Vivek Pattanayak in Bhubaneswar, April 6, 2017 : A periodic review of the country’s economy is perhaps necessary to assess where we stand, particularly after the financial year has ended although all the reports for the year as a whole are yet to arrive. Media reports that stock-market is doing well with SENSEX about to reach 30000, net foreign portfolio investment (FPI) last Monday was Rs 5034 crore, Rupee as a currency has strengthened by 4.6% vis-à-vis US dollar between January and March, and VIX (volatile index) factor has plunged indicating stability.

What is the percentage of people who participate in the stock market is the logical question a man with ordinary prudence would ask. Retail participants in the share market are insignificant in number, less than 1% of the entire adult population. In spite all the talk of financial literacy, it has not made any dent as a result in spite of high rate of saving in India in comparison to Europe and North America, participation of people in the capital market is abysmally low.

With disappearance of regional stock exchanges one wonders who actually takes the lead in this field although theoretically SEBI, the regulator and its associate bodies, and major stock exchanges like BSE and NSE should be a playing key role. The enterprises which succeeded now defunct regional stock exchanges can be certainly encouraged to play effective part since they still have professional personnel and infrastructure. One may raise a very pertinent question who in the governing system actually thinks about these moribund institutions no matter who are their stake-holders.

Increase in foreign portfolio investment has a beneficial effect on the economy as the level of foreign exchange gets raised giving flexibility for its use for international trade and commerce apart from giving psychological comfort for the central bank, industry and government. Increases are generally transient in nature unless there is a sustained bull run. Apprehension that US Fed’s rate hike would have adverse effect on the emerging market has not surprisingly come to reality. There is at the same time indication that Fed may resort to more rate increases as the year unfolds. Economists would continue to be on tenterhook for more time to come. In any case there is limit to economist’s understanding of economy.

Hardening of rupee is good as it gives relief to importers although it may not be a happy trend for the exporters particularly when the country has not done well in that sector. VIX factor going down means less of unpredictability in the capital market. Those who are looking for deleveraging, it is perhaps the right moment. For those retail small investors aspiring to create wealth, it is not perhaps ideal.

In this background, it is depressing to note that the stressed assets of the Banks have reached Rs 6,07,000 crore by the end of December 2016. Although three years have passed since the time question of setting up of an Asset Management Company has been recommended and idea of creating a “bad bank” to manage non-performing assets has been mooted, nothing tangible has been done as a consequence of this making availability of credit through banks has been constrained or enabling banks to reduce rate following the last rate cut made by the central bank has become even equally difficult. Banks themselves are not willing to follow traditional methods of initiating individual settlement schemes for fear of retribution from investigating agencies.

In this context, the fiscal deficit seems to be above target with core sector growth being almost fifteen-month low, cement showing drop reflecting not favourable situation in respect of sector relating to infrastructure. Sugar output would go down by 19%. The crops are price sensitive. Viable price enables higher acreage and higher yield unless affected by pests or adverse weather. Advantage of a favourable weather of last agricultural season is not always guaranteed in an economy heavily dependent upon rain gods.

Coming agricultural season according to weather forecast will be affected by El Nino phenomenon with unpredictable consequence. Higher emphasis on irrigation through repeated budgetary provision must translate into physical reality. Excess wheat production giving opportunity for export has got timely support from the government through countervailing measures. Lack of storage facility yielded loss for farmers growing tomatoes partly because of cash crunch possibly due to currency shortage.

In the job market there is no visible alacrity with apprehension of unexpected job losses owing to liquor ban and crackdown on abattoirs mostly covering poor in the informal economy after Trump phenomenon causing anxiety among the army of IT professionals once in hot demand in America and Europe. Robots and artificial intelligence have threatened our existing skilled human resource assets.

There must be also recognition that there are jobs but not skills. A study reveals that in India only 2.3% have undergone skilled training while it is 68% in UK,75% in Germany,52% in USA, and 80% in Japan. In the Global Talent Competition Index India is 114 in talent attraction and 104 talent retention.

The whole sale price index has shown upward trend in February. The central bank had taken a neutral stance during the last review. Goal of the RBI has been inflation targeting. Monetary policy is more an art if not less a science to quote former Governor. While business and industry advocate rate decrease, central bank has to see both inflation and job creation before MPC takes a position. Any rate cut does not automatically translate into new investment yielding jobs. Large behemoths must have will, risk-taking ability and correct favourable ecosystem to invest. Sebastien Soriano, Chairman of the Body of European Regulators for Electronic Communication frankly stated there is interest in Europe in investment in India under Make in India. At the same time the big operators are finding there is too much of regulation.

In USA, Fed Chair very candidly observed that Blacks and Hispanics are not doing as well as Whites and Asians. She advocated regulatory measures to correct the trend. In India although a slew of measures have been announced by government in the recent years for facilitating doing business with ease, and
some spectacular reforms have been done to attract foreign investment, the results are yet to come on ground. Much vaunted GST will take its own time to bring a seamless market which can possibly be the spring-board of growth in the long run. Demographic dividend has to be harnessed on time to avoid disaster.

The governments whether at the centre or at the State must concentrate on low hanging fruits like infrastructure: roads, railways, air transport and maritime transport, and power sector (hydro, thermal, solar and wind power). Rural roads and agricultural warehouses, and cold storages would assist agricultural sector and bring prosperity into the rural areas.

First they should give priority to implement in the government and public sector because decision making is in their hands and subsequently in joint ventures with private sector (foreign or national) under PPP model where feasible. Other easy reach would be tourism and hospitality sector by encouraging investment in hotels, motels, resorts where possible casinos promoting them on sea fronts, on lakes and creating new hill stations for domestic and international tourists dovetailing them with Clean India programme. Growing middle class of India would prime the market. Foreign tourists would follow once the infrastructure is ready. This investment will augment production of cement, steel, aluminium and other alloys reviving mining sector.