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The Prime Minister is a sloganeer master. The first in public memory, “Zero Defect, Zero Effect”, was not very clear. It is obvious that Indian companies should reduce defects in their manufactures. But why should it have a “zero effect”?
Then came the one who made waves: “Make in India”. It had a graying history. Although Jawaharlal Nehru did not have a slogan for it, the governments of Nehru and her daughter favored Indian companies and products and ruled out foreign imports and products for decades, leaving India far behind the more open economies of eastern Europe. Asia. “Beti Bachao, Beti Padhao” was relevant. But no action followed.
The last one, “Vocal for Local”, rhymes well, and “Atmanirbhar Bharat Abhiyan” is a good Sanskrit and difficult to pronounce. But they both mean the same thing: to do in India.
The making of ideas has lagged far behind the invention of slogans. And the idea is still as wrong as it was half a century ago. India punishes the import of consumer goods; They are mostly made in India. Services are also kept out.
And imports of industrial equipment and supplies actually help Indian industry. Doing them in India would make it even less competitive. This time, too, the Prime Minister could not resist his love of alliteration: land, work, liquidity, laws. What about them? What do they have in common? What will he do to them? The reforms of the past six years have made the economy more resilient. If they have, why are you in so much trouble?
He wants Indian companies to embrace efficiency and quality and prepare India to compete in the global supply chain. The industrial protection that your government introduced in the last six years has done the exact opposite. But not a word from Modi about dismantling it.
The poor have suffered a lot, we will increase their strength. “But their sufferings peaked with the blockade imposed by their government. Could you have thought of them before acting with so much decision? Finance Minister Nirmala Sitharaman has the difficult The task of turning the slogan into politics. But she loves details. She is good at picking up ideas (good, bad, and indifferent) from her colleagues and turning them into politics.
Some of them are brilliant, while others don’t make sense. Many are old policy announcements once again repeated. The FMs according to the news have created dozens of social assistance plans over the years. Sitharaman has assigned varying amounts to some of them.
For example, the Construction and Construction Workers Welfare Fund can provide assistance to workers. If so, what were you doing so far? The District Mineral Fund will now expand medical testing. What do minerals have to do with medications? If it was already about financing tests, what does the expansion add to them? It looks like the RBI emergency health package of Rs 15,000 crore. Did you know that RBI was in the health package business? I did not do it
RBI has been actively lobbying banks to lend more. In the 2008 global crisis, European banks were not lending. So the European Central Bank created long-term refinancing operations to lend them money against their previous loans, and gave them money to increase the loans.
Last March, RBI took notice and created a Long-Term Refinancing Operating Fund (TLTRO), run because it wanted banks to target troubled small and medium businesses. Now, he has offered money to lend to financial companies that have gotten into trouble because of their loans to those SMEs.
Such policies of throwing good money after evil are common in difficult times. But one reason why Indian banks have chronic problems is that Sebi long ago destroyed the stock market with overregulation. Indian companies have little access to venture capital and therefore obtain it from banks and call it loans. RBI has loaned billions to banks to refinance those loans.
You will never get your money back. The FM, for the first time, has shown some awareness of the problem. But his solution is strange. GoI will facilitate, whatever that means, the provision of Rs 20,000 crore as subordinated debt. That is, the debt that does not have to be paid until all other loans have been paid.
In other words, banks will be asked to make loans with an informal guarantee that they are gifts, unless the bankrupt company begins to make huge profits one day. “Micro, small and medium-sized enterprises” is a typically long official term, collapsed in MSMEs. The special category was created decades ago, and GoI will be right to redefine them. But what is special about it? Should they be a separate category? It was created because government banks were reluctant to lend to them.
But their creation made them no less reluctant. GoI gave order to public sector banks after treating MSMEs favorably, with little effect. The way to promote smaller companies is to create competition in the credit market by allowing many more private banks and, above all, creating a vibrant equity market.
Sitharaman’s intentions are good. But his analysis needs improvement.
The writer is a former chief economist, ministry of finance, GoI
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