Friday, March 16, 2012

UPA II & sinking Indian economy

India's finance minister Pranab Mukherjee today on March 16, 2012, presented federal budget to parliament Lok Sabha. I don't know what he said and did not read analysis of his speech yet.

However whatever his arguments I want to say his government UPA II is responsible for gross mishandling of Indian economy.

Many companies now report huge losses due to the government inaction, red tape and corruption.

Look at this article I read yesterday in International Herald Tribune

Update: I've found how I can copy text via Microsoft OneNote. So here is the copy:
When people talk about Europe’s ‘ ‘ government debt problem ’ ’ they mean something easy to describe: countries that borrowed more money than they can easily pay back. In India, it’s a bit more complicated. Here, where the government is grappling with national debt and a growing budget deficit, the state might play the part of the delinquent debtor, the imperiled lender or the foot - dragging regulator. Or it may play all three roles in a single set of tail-chasing transactions.  
The private company Hindustan Construction, for instance, is trying to renegotiate its $1.3 billion debt, some of it owed to government banks, to avoid defaulting. The company says its financial problems are partly a result of the government's slow payments for road and highway projects, as well as government delays in giving final approval on other projects already tentatively authorized.  
Bad loans now pose ‘ ‘ the most significant risk to the financial system ’ ’ in India, according to a recent survey of 100 bankers by the Reserve Bank of India, the country ’ s central bank. 
India, whose once red-hot economy has started to cool, is now trying to cope with debt and deficit problems that will put strains on the annual budget that the country’s finance minister, Pranab Mukherjee, plans to present to Parliament on Friday.  
The Indian government’s debt stands at nearly 69 percent of its gross domestic product, according to Citigroup. That is little changed from 71 percent a year earlier. But its fiscal deficit has been rising, and many analysts expect it to be 5.8 percent of G.D.P. at the end of March, up from 4.8 percent a year earlier.  
Meanwhile, as India’s slowing growth creates financial challenges for state-run and private companies alike, the risk has fallen disproportionately on government - owned banks, which account for about 75 percent of India’s banking system. At the end of December, 3 percent of loans made by the 15 largest state-owned banks were nonperforming, compared with about 1.8 percent for six newer private banks, according to Avendus Securities in Mumbai. CARE Ratings estimated that 17 public and private banks collectively had $25.7 billion in bad loans on their books at the end of 2011, a figure expected to grow in the coming months.  
Analysts say most of the problems are concentrated in industries like aviation, infrastructure, real estate and telecommunications, businesses where the government is heavily involved as a player or lender, and which have also suffered from erratic or delayed government policies. Among the companies now struggling even to pay their employees are two of India’s biggest airlines. One is the formerly admired, state-run Air India. The other is privately held Kingfisher Airlines, which besides stumbling from its own management missteps has been hurt by the government ’ s barring it from profitable international routes to protect Air India.  
And in electric power, analysts describe a looming financial disaster in state-owned utilities. They have accumulated losses of $14 billion because the low government - mandated rates they charge customers do not cover the cost of gene- rating power.  
And no industry is helped by India’s slowing economy, which expanded 7.4 percent last year, down from 9.9 percent in 2010, according to the International Monetary Fund. The fund expects India ’ s growth to slow further this year, to 7 percent. While that is robust relative to developed countries, most economists consider it laggardly, contending that even in the current global economic climate India has the potential to grow 9 percent a year.  
Many analysts blame policy paralysis. Leaders in the governing coalition led by the Congress party are deeply divided about the best way forward, especially as their political authority has been eroded by a series of corruption scandals. This month, opposition and regional parties scored big victories in five state elections, further calling into question the mandate of the government in New Delhi led by the Congress party.  
That is why economists and analysts will be scrutinizing the budget that Mr. Mukherjee plans to present for the new fiscal year, which starts next month. 
Analysts say he could help bolster the economy by announcing a plan to lower the budget deficit and by speeding appropriations for pending government-financed infrastructure projects. The Reserve Bank of India has already signaled that it could begin cutting interest rates this year, which should also help.  
While expectations of an economic rebound have already helped drive up the main Indian stock index more than 16 percent so far this year, many analysts and executives do not expect a quick recovery.  
Reuters authors are very conservative and argue for unpopular measures like price rise. But some facts are startling. We all know about plight of Air India, Kingfisher and other airlines.

But now contagion seem to spread to other sectors as well, Hindustan Construction conglomerate on brink of bankruptcy, cannot repay $1.3 bln debt accumulated due to government failure to pay for infrastructure projects.

Why Indian government cannot get its act together and radically reduce redtape it's mindboggling and mysterious for me.

Year after year after year I arrive to upper Dharamsala, in McLeodGanj, where Dalai Lama lives. And what I see never changed - an unfinished bus station.

I looked in my photoarchive but could not find better picture than this, taken recently during snowfall.

Down below you can see the unfinished bus station complex, covered by snow.

So what's problem with it.

As far as I know the bus station was contracted to one entrepreneur.

He built estacade but also illegally built shopping cum hotel complex next to the bus station. Apparently  without some permits (from forest authority).

Officials filed case in local court, managed to get stay order (on construction) and since then I could not detect any movement at all. Many years passed and Indian judicial system did not come to conclusion, one way or the other.

Meanwhile lack of proper bus station hindering tourism in Dharamsala, locals and tourists experience problems.

And it's not unique case, thousands of such infrastructure projects across India lay dormant, hindered by government red tape (both on central and local level) and judicial corruption. I saw in Hampi onse such object - bridge over Tungabhadra, I am very curious whether it's completed or not. It was under construction for 20 years at least.

If Indian government was serious in developing economy babus (officials) could do something to remove such obstacles.

That's why I don't have much hope in UPA II.

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