The GDP numbers are finally in. 5% is what we could muster last quarter....
Boy, did that journey to $ 5 trillion just get a whole lot difficult or what? 🤯
How did we get here?
So as soon as details about the GDP number started coming in, we wanted to get you the most reliable opinion on the matter. So we obviously went to the best, most preferred destination for financial news.
And here’s what Twitterati had to say about the matter
“Indian consumers are penny-pinching.” “ Actually Indian consumers are reluctant to spend.” “ The real reason is the Manufacturing sector. Rahul Gandhi has destroyed it.” “In fact, it’s the entire private sector. Everybody’s bloody good for nothing”
“The country’s leaders are clueless. We need structural reforms.” “ Stop this nonsense GDP. Give some structural reforms” “ Do the structural reforms” “Please do structural” “SOMEBODY, DO SOMETHING!!!”
Yeah….. Expert commentary alright.
Anyway, soon after, Dr Manmohan Singh, the towering economist and the former Prime Minister castigated the ruling majority for the economic blunder that has set in motion this unfortunate sequence of events. The ruling majority promptly retorted saying “it’s all the Congress’ fault” and that they should be the ones apologizing to the nation.
So who is really at fault here? Who's the real culprit? More importantly who's going to be the fall guy?
Since everybody seems to be asking the same questions, we thought we'd help you out a bit here.
Don’t ascribe to malice what can be explained by incompetence
The BJP is partly right here. The problem did not originate yesterday. The seeds were sown a decade earlier. In fact, this was when most people thought India’s double-digit growth would allow it to beat China in no time. This was also at a time when industrial titans in the private sector were making grand plans for the future based on these double-digit growth projections.
Unfortunately, after the global financial crisis of 2008, these growth projections came to a grinding halt.
This would have been a prudent time to reevaluate past decisions and revise those projections. Unfortunately, their incompetence got the better of them.
Private corporates kept borrowing based on the existing faulty projections and the banks complied doling out more loans every day. For the first two years, it was beginning to seem like India could in fact defy economic laws by growing at a rapid pace despite the global slowdown. However, cracks began to appear soon after.
Don’t ascribe to malice what can be plainly explained by stupidity
By this time, growth projections in India were being revised downwards. This created two problems. After having bit more than what they could chew, the private sector had a lot of unused capacity lying around.
It was like cooking a meal for 5,000 people when in reality only 50 were showing up. A lot of machines went unused, a lot of labor went to waste and profitability suffered.
This should have forced them to act. Wind up, throw in the towel , do something, because they were now on life support. Unfortunately, they did nothing. Instead, they tried to push their expiry date by borrowing some more and continued living on the ventilator. This was plain stupidity.
Ascribe to Malice what cannot be explained by incompetence or stupidity
Considering they were now living on borrowed time, banks should have been prudent and acted wisely. They should have pulled the plug. They should have stopped funding. Instead, the bankers were always on call to serve the interests of crony capitalists. One loan became two. Two became four. And soon they had to dole a new loan every day simply to cover the interest expense on the previous loans. Rules were circumvented. Check and Balances became old fashioned.
Everybody knew that if this thing failed, the banks were going down too.
And one day it happened. The RBI forced banks to review all their existing loan accounts and the skeletons tumbled. The private players who were barely scraping by were now being forced to shut shop. The banks that had loaned out billions to these people were left with little recourse to retrieve their money.
Big Banks suffered. Many large private corporates went bankrupt.
The Final Act
These private sector companies should have gone ages ago. So that new young startups could take their place. It would have been a valiant death.
But when you extend your life artificially by fleecing government-owned banks and through it, the taxpayer, there’s nothing valiant about it. It’s a mockery of the entrepreneurial spirit.
And so we are now at a time when private investments have hit rock bottom. And the banks that could potentially revive some of the “animal spirits” as the government likes to call it is also down in the dumps.
What’s particularly distressing however is that in the midst of all this, a few rabble-rousers have gone on the offensive, attacking anybody questioning the government for the lack of clear cut policy decisions that could help us get out of this quagmire.
“Why are you portraying everything as a negative?”, they ask.
Well, here’s the thing buttercup. Nobody is presenting things negatively. Things are simply presented as they are.
If you will allow me to quote a few banging lines from the epic HBO series Chernobyl.
“We are so focused on our search for truth that we fail to consider how few actually want us to find it. But it is always there whether we see it or not, whether we choose to or not. The truth doesn’t care about our needs or wants — it doesn’t care about our governments, our ideologies, our religions. It will lie in wait for all time….Where I once would fear the cost of truth, now I only ask what is the cost of lies.”
The Big Bank Merger
Also, on Friday, the government announced the merger of 10 public sector banks into 4.
The hope is that when the good banks and the bad banks are clubbed together, certain magical properties emerge. For one, the bad bank can continue to survive. Where otherwise it might have ceased operations or failed altogether, it can now have a second lease of life. The government also thinks that this will improve the health of the banking sector overall.
Well for the government's sake and more importantly for our sake, we hope that that assessment is true.
Also, if you want to know more what's driving economic slowdown our article here.
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