https://www.cnbc.com/video/2018/10/09/the-imfs-india-growth-estimates-are-too-optimistic-economist.html
My take : There is an element of truth in what he says. But not entirely. Let me explain.
And oh, by the way, listen to Sakthi Siva, also of Credit Suisse ( Google her) . She is the Asian Bureau leader for equity research, I think, for CS. She had gone underweight on India since May, at the time when the bulls were raging.
Now, to this. Listen to Neekanth once again. And tell me, which of the macro factors he mentions have cropped up yesterday. To be fair to CS, they have gone underweight. But show me one other International Brokerage house, or FII, that has gone underwieght, or even neutral, on India ( until this month, ie) .
Many of the foreign institutions are now finding the Asian markets to be vulnerable. India is one of them. That is all. EMs are now perceived as a week spot, at a time when US Bond yields are rising, and expected to head northward. The spiralling of oil prices is not helping, either. So, now, these houses are now finding it convenient to move to safer havens ( why not? If I were them, I would do the same). So, all these "macro factors" are now being highlighted, in preparation for an exit. Note that Singapore market fell 15 today, at a time that the Indian market rallied 1.5% ( mainly short squeezing).
Energy - I am surprised that he is talking as if the problems cropped up yesterday. What took him so long to even realize that India is vulnerable on the energy front?
ONGC is simply unable to drill out more oil. No new capacities are getting added. The older wells in Digboi and other areas in Assam are drying up faster, partially compensated by Vendata's onshore exploits in Rajasthan. But , that apart, our attempts to secure conventional energy ( oil mainly) , are not succeeding. That includes our attempt with ONGC VIdesh, the company that was specifically formed for venturing out to other countries like Vietname , Kazakhsthan etc, to secure oil. Reliance has completely failed in finding oil in Krishna basin. Natural gas is only availbel at 4 km depth in the Bay of Bengal, and that is cost-inefficient to tap. Nett of it - we continue to import oil, and that is our vulnerability.
Coal - Neelkanth is wrong, when he says we have no coal. It is well known that India has the largest coal reserves in the world. Enough to last the next 150 years ( based on on known deposits). We have vast resroues of coal. The problem is the quality fo the coal that we get here, is much worse than, say, Australian coal. So, again, commercially, it is cheaper to pay shipping and import Aussie coal with higher calorific value, than mine locally. Plus, companies like BHEL have not invested enough in R&D on how to maximize power production with the kind of coal we have. And this does not come overnight - that culture is simply missing in BHEL since independence.
Which is why the Modi Govt has set ambitious targets for Solar and wind power generation, targeting to add 100GW of power from Solar alone, by 2022. They have done 34GW so far. That is a cool 34000 MW power capacity added , from Solar. No mean achievement. I know Laks will kill me for saying this. but the western houses like CS do not recognize this solar effort at all. Simply because the panels, the key component, are being imported from China, who is the largest panels manufacturer in the world.
Now, if you need to grow at 8% clip YTY, then you need much higher power capacity to be installed, than the 34GW done so far. But, again, there are strutural problems in the power sector that are unique to India, that are preventing further investment.
1. High cost of capital - at 8.2% for 10 year bonds, enterprise cost of capital is upwards of 16% p.a. effectively. Makes new power plants unviable, at a time when cost/MW for Solar and Wind are dropping rapidly.
2. India has the highest Transmission and Distribution loss, in any major economy in the world. If I remember correctly, that is 22% ... which effectively means, you are not adding 34 GW, you are adding 22% less ( roughly 1/4th goes waste) . Loss is on account of inefficient transmission, lack of a fully functional national power grid that can take power from production head to consumption point anywhere in the country. And then there is pilferage, sponsored by politicians.
3. State Governments are broke, throwing money away in populist schemes. WHich means they are not paying power producers and T&D guys. Huge outstanding balances are dragging the OEMs, producers and transmitters and distributors, alike.
4. To alleviate that, Modi brought out a scheme called Urjha, where term loans were to be given to state eletricity boards Due to political compulsions, that scheme was a failure.
5. In the boomtime of the early 2000s, under the then UPA, many companies, with apparent political backing, were allowed to borrow huge sums of money, and over-leverage their balance sheets. Lanco infra, GMR, GVK, Jyoti Structure, BGR Energy, KSK Energy ventures etc.. Lanco went an invested $5B in Australia to buy cola mines, which was shot down by the Supre Court of Australia on Environmental grounds, leading to huge lossses. Most of the above companies are now NCLT cases ( equivalent of Chapter 11) . Matter of time, before they get to Chapter 7. 😂 . Needless to say, such over-leveraging smacks of the over-leveraging of Balance sheets, and is causing huge NPA issues to banks, which are now barred from lending to many such adventerous projects, leading to a tailspin of credit squeeze. Nett of it, no new capacities are being planned to be added, at a time when the country desperately needs new capacity. Now, you can make your own conclusion on whether this particular screwed up an otherwise milk-and-honey situation, or whether this malaise should have been addressed by successive governements over the past 70 years. The UPA did try to accelerate this, but , in the bargain, they failed to do enough checks and balances, leading to this mess of today. In otherwise, the intention then was right, but the execution was faulty ( discounting all those scams).
Coming to GST, it was a structural reform that had to be done. And has been done. I have lived in Australia at a time when they switched over to GST. Even for a compliant society like theirs, they went through hell. I hav e also lived through transition to GST in Singapore. Same story.
GST is bound to cause short term pains. And in a complicated tax regime like ours, expect much more pain. the fault of this govt lies in not setting the expectations of people accordingly. they made everyone believe that it was going to be rather easy.
DeMon - the intention was absolutely right. The execution was faulty, leading to short term disruption, which , in hindsight, looks unwarraneted, purely going by the rather comical measures the govt undertook subsequently. For example, if they withdrew 1000s, to prevent hoarding of cash, then, why in the first place, introduce a 2000??? I found that a Thuglak-like step. The objective was fantastic. the execution, in my opinion, was botched. The impact? For all the tall claims of the opposition, the impact , barring the first 30 days, was minimal, either way. Indeed, most companies, including the SMEs , have bounced back. Was DeMon necessary? Absolutely. We did that earlier Many other countries have done that, including Australia.
Phew!!
