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Dear Readers,

Financial sector vis–a–vis economy: Financial sector is the backbone of the Nation. The role of finance in boosting the GDP and development of the Nation has been very restraining. All sectors – manufacturing, services, health, agriculture, logistics and others need finance for their growth and survival. Availability of finance enhances the risk-taking ability of promoters even times of external factors affecting the enterprises who multiply, diversify and expand their businesses once one or two of their ventures start generating funds. Due to global historical vagaries of the business, enterprises may in recession and there may be delay and default in payment, which does not mean assets have become non-performing.

RBI is planning to bring in a Prompt Corrective Action (PCA) framework for NBFCs. The PCA Framework for NBFCs shall come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022. Analysts believe that NBFCs are already complying with the norms of RBI. Pandemic has created immense stress in this sector. While the borrowers of NBFCs were given moratorium and allowed a one-time restructuring window, as prescribed by the RBI, the NBFCs, in spite of being themselves borrowers as well, were not allowed any such relief from their lenders. Equity prices of NBFCs have slumped. RBI’s new framework is akin to the one already there for the banks. It will lead to slow growth and make availability of liquidity difficult for MSME retailers, contractors and others. Although banks have been on a Balance Sheet cleaning spree, their gross NPA ratio is likely to increase to 9.5% in September 2022 from 6.9% in September 2021 in a severe stress scenario, according to the RBI. Banks can afford to clean their Balance Sheet by taking several measures and for them the RBI plays the role of ‘lender of last resort’. But the NBFCs do not have such comforts. They are being pushed to NCLT.

Indian commercial banks have written off a whopping `9.54 trillion worth of bad loans in the last five years, of which more than ` 7 trillion was by public sector banks. The written off amount is more than double of the sum recovered during the same period.

Write-off of such large amount was to keep the balance sheet of the banks clean. Had the banks restructured the stressed accounts, such large amount would not have been written off affecting the growth and employment. Substantial assets would not have been wasted. The body like Board for Industrial and Financial Reconstruction (BIFR) was the instrument for revival of several sick units.

Videocon Industries creditors’ total verified claim was of `64,637.6 crore and NCLT Mumbai approved the resolution plan for payment of ` 2,962.02 crore of the bidder which was later stayed by the NCLAT. The Videocon case is one of the exceptions. Already a number of such stressed companies have been sold out at near liquidation values forcing the lenders to take huge haircuts.

Lanco Amarkantak Power is undergoing IBC proceedings at NCLT. A group of 14 banks has filed claims worth ` 14,000 crore for recovery of debts from the company. Lenders have rejected Vedanta’s ` 2,800 crore offer.

Bharat Economy: RBI’s January bulletin reports that overall economic activity remains strong with surging of confidence of consumers and business, although global growth recovery remains uncertain. According to the UN World Economic Situation and Prospects (WESP) 2022 report, India is to grow at 6.5% in FY22, a decline from the 8.4% GDP growth estimated in FY21. The country’s economic recovery is back on track amid rapid vaccination. However, uneven recovery across sectors coupled with coal shortages and high oil prices could put the brakes on economic activity in the future. It is critical to encourage private investments to support growth and employment. PM said in his special address to the World Economic Forum that India’s commitment is for deep economic reforms and for greater ease of doing business. There are new challenges which are being addressed. Young Indian Entrepreneurs have the ability to adopt new technologies. Their innovation can infuse new energy into country’s various global partnerships. He said that lifestyle issues are also posing challenges to the climate. He said that start-ups are going to be the backbone of new India. A record 42 start-ups turned into Unicorns in 2021. About 61,000 start-ups have already registered themselves with the government, within six years after the launch of Start-Up India in January 2016. It is essential that the government and authorities stand with them when they are affected by the vagaries of business and it must also be ensured that they are not projected as criminals without the judgement of the Honourable Courts.

India’s forex reserves have increased by USD 2.229 billion to USD 634.965 billion in the week ended January 14, while the gold reserves rose by USD 726 million to USD 39.77 billion.

Chief Economic Advisor said that India would achieve double digit growth in the current financial year on the back of policy initiative and continuing reform. Country can comfortably meet the fiscal deficit target of 6.8% of GDP. However, amidst the ongoing pandemic and surfacing of new variants, some concerns have risen.

However, impact will be less. Global rating agency S&P (Standard and Poor) kept India’s economic growth forecast in FY22 unchanged at 9.5%. India’s economy has shrunk by 7.3% in FY21. 

Power Sector: The power distribution companies (discoms) of the government has total dues of ` 1.21 trillion as on January 2022 to the power generating companies (gencos) and the outstanding dues rose 4.4% on a year-on-year basis. This has pushed many of the gencos on the brink of default to their lenders. The situation is likely to improve if the gencos are allowed to supply power to all categories of consumers besides the public discoms. Financial loss of discoms has been increasing despite reforms and purchasing the power at a low rate having adequate / substantial profit. The renewable power companies’ dues surged 47% to `21,008 crore in December 2021 from ` 14,259 crore a year ago because of continued payment default by state distribution utilities. How can these renewable energy companies survive? A time may come when they too will be pushed to NCLT.

Export/Import: For the first three quarters of FY22 (i.e. April to December 2021), India’s merchandise exports showed a higher growth rate than imports as compared to pre-pandemic levels. Merchandise exports touched USD 301.38 billion in April-December 2021, while merchandise imports touched USD 443.82 billion for the same period. India’s trade deficit has typically been in the range of USD 150-160 billion for the past three years.

Fiscal Deficit: NITI Aayog suggested that the government should not rush to lower fiscal deficit in the next financial year. It should step up capital expenditure to create jobs and demand.

Cover Story: Hunger is a global phenomenon. The pandemic has created devastating effects on poverty and global hunger. A July 2020 fiscal report by 5 UN agencies found global hunger multiplied in 2020. About 2.3 billion people out of a global population of 7.9 billion do not have sufficient food. Additionally, more than 155 million people have been suffering from acute hunger.

More than half of all undernourished people (418 million) live in Asia, more than a third (282 million) in Africa and about 60 million in Latin America and the Caribbean.

It is a pity that global economy has risen, but global hunger has also risen. The global economy was projected to grow by 5.9% in 2021. India’s projection was of 9.5% in 2021, the fastest growing major economy followed by 8.5% of China. It is reported that India and China has faster increase in private wealth than that of wealthy countries. India has the 3rd largest number of billionaires in 2021. India has slipped to 101st position in the Global Hunger Index (GHI) 2021 of 116 countries, from its 2020 position of 94th. It is now behind its neighbours Pakistan, Bangladesh and Nepal. India has buffer stock of food grains which is about 30% than that of reserve stocks required to meet drought and any calamity. Substantial quantity of food grains are being wasted in storage, logistics and are eaten by rodents. There is not enough storage space, so stocks are often lying in the open. Government is spending substantial amount on roads and other infrastructure, but not creating enough storage capacity. Proper and adequate planning is the need of the hour to mitigate hunger and poverty by launching employment schemes, especially in urban areas. Although rural small and cottage industries mostly remain under the grip of authorities, the MGNREGA schemes still address the problem of rural unemployment to a large extent. But assets and infrastructure under this programme have not been created as envisaged and fund spent. Something similar needs to be worked out to address urban unemployment as well. God through Mother Earth provides enough to satisfy every man’s need, provide all work hard as called by Swami Vivekananda, but not every man’s greed.

Hunger has always been there. About seven centuries ago, Sant Tulsidas, in his childhood, was not having food. At the Ganga ghat of Banaras, he used to pick grains given to monkeys. Government has enacted the National Food Security Act (NFSA) to provide food covering up to 75% of rural population and 50% of urban population. The Act is operational in seamless manner across all states and union territories. Through the public distribution system wheat and rice have been distributed at subsidised prices.

To mitigate hunger there is a need to have employment growth along with economic growth. Even if economic growth is slowed down, employment should not be affected. For creating employment investment in rural housing, floriculture, pisciculture, apiculture, etc. should be done. New Zealand, Holland have substantial export earnings from apiculture. Drumsticks and other trees provide good nutritious food. These can be planted along the national highway and railway trackside. This will also prevent soil erosion.

Sant Tulsidas said that there is no misery in this world as terrible as poverty. There is extreme pleasure in helping and servicing others by thoughts and actions. Beneficence in thoughts, words and deeds is the innate disposition of saints. They undergo suffering in the interest of others.