http://blogs.timesofindia.indiatimes.com/folk-theorem/magic-wont-turn-it-around-nda-has-ushered-in-an-economic-policy-vacuum-causing-animal-spirits-to-evaporate/
Magic won’t turn it around: NDA has ushered in an economic policy vacuum, causing animal spirits to evaporate February 22, 2016, 12:54 AM IST Abheek Barman in Folk Theorem | Economy, Edit Page, India | TOI In 1906 Ambrose Bierce, an acerbic San Franciscan, published The Devil’s Dictionary, a reworking of words in standard use. Thus, “Money: A blessing that is of no advantage to us excepting when we part with it….” Over the last year stock market pros have pondered this at leisure, while parting with lots of money. The Sensex, a 30-share index that tracks India’s most valuable companies, has crashed 22% in 52 weeks. Investors say our equities are now in a ‘bear hug’. A bear market is one that has shed 20% or more in a year. Gossip over Glenlivet in south Bombay is mostly gloomy. At its chirpiest, it hovers around a topic called, “catching the bottom.” This is a futile craving to buy only when a market plumbs its depths, and starts going up. If you catch the bottom, you’re supposed to get great assets, dirt cheap. Bierce would have loved this phrase. What a change from December 6, 2015, when Goldman Sachs published its India 2016 Outlook: A Cyclical Upturn. It announced confidently, “We expect India’s cyclical upturn to continue in 2016, driven by domestic demand.” India, it claimed, could grow 7.9% and accelerate to 8% or more between 2017 and 2020. A month earlier another global financial powerhouse, CLSA, published its forecast for 2016 called Enviable Position: Mapping India’s New Normal. Despite the upbeat title, its authors had the good sense to point out: “Economies growing at 7%-7.5% have a certain spring in their step, which is conspicuous by its absence in India.” As we slouch through 2016, when can we expect a turnaround? Speaking to a business TV channel recently, technical analyst Vivek Patil reckoned a turnaround could happen by 2018-19. Meanwhile, he said the Sensex, now around 23,000, could fall all the way to 12,500 or 15,000, a nightmare if you’re out for a quick buck. The collapse of the market coincides with revelations that the core of India’s financial system – its state-owned banks – is rotten. State Bank of India (SBI), the largest of the lot, saw profits for the third quarter (Q3), which ended December 31, fall 62%. IDBI Bank posted a staggering Rs 2,184 crore loss in Q3, till then the highest quarterly loss by any Indian bank. This scuppered the government’s plan to sell 26% of IDBI to strategic investors. A day later, this record was blown away by Bank of Baroda, which is now the top loser among Indian banks: it vapourised Rs 3,342 crore in three months. Raghuram Rajan, who heads the Reserve Bank of India (RBI), frets about dud loans hidden in the books of state-owned banks. These loans have been handed out to dubious projects with dismal prospects with the full connivance of bosses of governmentowned banks. Now the taxpayer holds the can, as distressed banks scrounge for sarkari bailouts. Manufacturing refuses to pick up – capital goods is a drag on overall industry growth numbers. No surprise here: capital goods pick up when governments and companies invest. Neither shows any inclination of doing so. For five straight years, the investment to GDP ratio has been falling, from close to 40% earlier to around 29% today. Since investors put money where the rest of us put samosas, they have to be confident that the cash will pay off in the medium term. John Maynard Keynes, the greatest economist of modern times, called it ‘animal spirits.’ Animal spirits evaporate in a policy vacuum. Unfortunately, since May 2014, India is in such a state. The Narendra Modi-led government made little or no progress on reforms that need legislation. It is tough to ram laws through Parliament when you lack a majority in the Rajya Sabha, but not impossible. With its brute majority in the Lok Sabha, BJP dispensed with the niceties of conciliation and conversation that could have allowed some essential lawmaking to go through. The failure to do that – and legislate on economic reforms – is political ham-handedness. One major victim is an overhaul of India’s bankruptcy laws, which would have allowed lenders to take over troubled assets and turn them over to better managers. Another policy blind spot is the lack of awareness about the large and growing crisis on India’s farms among mantris and babus on Raisina Hill. We’ve had three years of drought. Rural infrastructure is crumbling. Farm incomes are shrinking: agricultural wage growth, at 23% per year in 2011, is now crawling at 2.5%. This has spilled over to other sectors. Rural consumption – everything from dal to soap, fertiliser and tractors – is down. Over the last year Eicher and Escorts, two of our bigger tractormakers, have seen stocks fall 14% and 37%, respectively. Market leader Mahindra & Mahindra has lost 17% in the same time. New Delhi believes farm and factory are twins separated at birth. They need to understand that each is a side of the same economic coin. Despair at this new policy paralysis is apparent. On February 11 Bank of America-Merrill Lynch (BoAML) published its expectations about the Union Budget, due February 29. BoAML’s outlook is depressingly modest: “Catalysts not likely to be in the Budget.” Magic, wrote Bierce was, “The art of converting superstition into coin.” Policymakers need action, not magic, to turn things around. -- Peace Is Doable -- You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To post to this group, send an email to [email protected]. 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