Market rout: Modi magic is all but gone, welcome to the real economy

After 19 months of Narendra Modi rule, Indian stock markets have crashed to 2014 levels, reminding the days of Pre-Modi-mania. The rupee is nearing its all-time lows. Fresh investments are declining. There are more in number now who question what the NDA government has done so far to lift the animal spirits in the economy; the promises it made to the investors and the common man on the street.
Once again, fingers are being pointed to the man himself -- the invincible Modi (of course, until Delhi and Bihar happened) -- who single-handedly guided the BJP to a landslide victory in May 2014 defeating the Congress party, which weakened by allegations of corruption and policy paralysis. Modi promised 'acche din' to a billion hopefuls. It included investors, who were desperate to see the economy sprinting on the radical reforms path and one-third Indians waiting to come out of poverty.

After 19 months, the dominant mood among economists and investors is that of pessimism, as is reflected in the financial markets. "The reality check on post-election positivity has seen asset markets pare gains," Radhika Rao, economist at Singapore-based DBS Bank said in a note on Thursday. "While headline growth is at a firm 7%+, on the ground developments are recovering at a more subdued pace," Rao said. Most economists and economy watchers seem to agree on this.

Is it fair to blame Modi alone for the crumbling financial markets? No. There are global factors at play too (such as the pain inflicted upon oil producing countries due to freefalling crude and the trouble brewing in China) that are beyond Modi's control. But, is there substance in criticising his government on fading investor confidence in India? Yes. The situation on the ground in the real economy doesn't look good with a firm recovery remaining elusive in the economy yet.

Whither confidence

As a matter of fact, there has been little progress on big ticket reforms (in tax, land and banking), which has clearly tested the patience of investors and rating agencies. Recently, global rating agency, Standard & Poor's had highlighted this fact saying India's ratings will stay unchanged until at least 2017 given the lacklustre recovery momentum, despite the small-ticket reform measures that has happened so far.

The fall in financial markets was coming as the Modi wave, which spiked the markets post May, 2014, has been fading fast. It was just a matter of time investors came to terms with what is happening on the ground. Growth hasn't picked up as expected. The stress in the corporate sector and banking industry, and slowing manufacturing activities throw signals that are hard to ignore. Logically, the government has sharply revised downward the growth target for the current fiscal year to just above 7 percent from an ambitious 8-8.5 percent expected earlier.

Devil in the details

Though India continues to be the fastest growing major world economy at even 7 percent, stress points are emerging on the ground. Most of the major economic indicators that should ideally support the high GDP number wouldn't do so. "Weak private sector participation, sluggish credit growth and banks' stretched balance sheets continue to be the main pressure points," Rao of DBS said.

Why is the economy struggling? There are a few reasons:

For one, the stress on the bank balance sheets due to high amount of sticky assets and paucity of capital have clearly impacted banks' ability to lend further, in particular to industries, which is critical to reboot the economy. This is a jolt to companies since bank funding constitutes the major source of funds to small and medium companies. Going by the latest RBI data, bank lending to industries has grown by 4.6 percent in the 12 months till October 2015 compared with 7.8 percent in the corresponding period in the previous year.

In the March-October period of the current fiscal year, credit growth to industries has languished at negative 0.3 percent compared with 0.7 percent in the previous year. The worst hit has been medium-sized companies, where bank lending has contracted by 10.9 percent as against a contraction of 1.1 per cent in the same period last year. Clearly, the health of the banking sector doesn't look good so far.

Arguably, the Modi government has woken up to the banking sector problems (dominated by public sector banks with 70 percent of the market share) quite late, on issues of bank capitalisation and reforms pertaining to the sector. The government remains skeptical about the privatisation of state-run banks. On the other hand, it doesn't have the ability to feed these banks with capital.

The government's promised capital infusion of Rs 70,000 crore in the state-run banks wouldn't suffice to meet their requirements on mandatory bad loan provisions, Basel-III requirements and further credit expansion.

Secondly, the government has failed to revive the manufacturing sector so far with growth across all key verticals experiencing prolonged slowdown. The tepid growth in factory output, also reflected in the core sector growth (fell 1.3 percent in November) and monthly PMI data (to 49.1 from 50.3 in November) indicate that revival in manufacturing activity has remained elusive.

Even though one can partly attribute the recent sharp contraction in IIP to seasonal factors (like that of November when it fell to a four-year low of negative 3.2 percent), economists fear that a visible drop in capital goods production and sequential contraction in most of the manufactured products sub-components raise doubts on the durability of the recent robustness in the industrial output.


Thirdly, reviving the over-leveraged corporate sector is another major challenge for the Modi government. The overleveraged corporate sector is facing severe stress on profitability. A recent note from rating agency Crisil forecast corporate earnings to grow by mere 2 percent in the three months ending December compared with 5 percent in the corresponding period in the previous fiscal year on account of plunging commodity prices coupled with weak investments in the economy.

Fourthly, the fact is Modi is yet to make a significant progress in kickstarting investment cycle. Indeed, FDI has gone up but not as much to boost his flagship 'Make in India' and 'Starup India schemes, let alone his dream of transforming India to a global manufacturing hub.

In a recent note, StanChart spelled out this problem. "We expect investment to slow in Q4, as the private sector investment on the same scale is unlikely and the government is likely to trim capex to meet its fiscal year 16 fiscal deficit target," StanChart economists said. More worryingly, they warn stalled projects to increase for the second consecutive quarter.

Separately, data from the Centre for Monitoring Indian Economy (CMIE) too warn that fresh investments in projects fell 74 percent in the December quarter to Rs 1.05 lakh crore from Rs 4.06 lakh crore in the corresponding period last year. This leaves the government to take the lead with continued higher spending even at the cost of breaching the fiscal deficit numbers.

Indeed the government has progressed on several small ticket reforms such liberalisation of FDI in certain segments, improving social security network through welfare schemes, promoting financial inclusion of poor through Jan Dhan Yojna coverage, plugging the leakage by covering most of the subsidies under the direct benefit transfer (DBT) and progressing on the bankruptcy code.

But the missing part, so far, is the large ticket reforms such as the crucial Goods and Services Tax (GST) Bill. Though the government has set April 2016 target for the roll out of GST, it appears difficult because the government doesn't have the numbers in Rajya Sabha to push the Bill and a consensus with the Congress is still not in sight. It is almost sure that the government is likely to miss the April 1 deadline. The inability of Modi government, which is about to enter the third year, to push big reforms has been a major turn off for investors.

The windfall gains from low oil prices have tremendously helped the Modi-government in the last one year to manage the import bill and inflation. But, a prolonged crash in oil prices would impact inward remittances and exports that have fallen for 13 consecutive months, which isn't good news for the economy.

The bottomline is this: what one is witnessing in the financial markets is the reflection of the weak global (mainly China worries) and domestic growth fundamentals. The Modi magic that worked wonders for stock markets is long dead and gone. It's time for the government to acknowledge the actual state of the economy and work on solutions.

Reliance employees can now study at Harvard or Princeton, hold on to job, pay, health benefits

For more than 24,000 employees of Reliance Industries, dreams of studying at Harvard, Princeton or any of the Ivy League colleges while continuing to remain employed at the company will soon be well within reach without the stress of worrying about health benefits coverage or a regular pay cheque.
Reliance Industries executive director Hital R. Meswani unveiled this work-and- study push to the company's 24.930 employees Thursday as an integral part of the logical continuum in the company's "performance and reward" programme begun last year.

Among the many highlights is that Reliance Industries will pay "up to 100 per cent of the tuition fees -- 50 percent in the case of international colleges."

Employee remains on RIL rolls

"What is more, during the sabbatical, the employee continues to remain on our rolls, drawing 50 percent of the salary besides other benefits," a top Reliance official told IANS.

As it sprints round the bend on its final stretch to launch Jio 4G services, Reliance Industries has energised its focus on new strategies to attract and retain high quality young talent.

Jio leads transformation

Jio headlined yet another attention grabbing change in the fag end of 2015 when the Reliance corporate culture took a giant leap forward with chairman Mukesh Ambani leading the top management's move into a refreshing new open office, free of cubicles and the legendary plush, high powered corner office.

Coming back to the new scheme, "the benefit is applicable at more than 50 universities and programmes. These include Ivy League institutions like Harvard, Stanford and MIT and domestic ones like the Indian School of Business (ISB), IIMs and XLRI," Reliance said.

Reliance has followed through on next steps after employees come back with new skills from their study abroad or in India.

"The organization provides the incumbent a role commensurate with his or her enhanced knowledge at the end of study tour," Reliance said - factoring in a well documented management issue of how to best use newly acquired skills and exposure of existing employees.

Not just Ivy League

Although this scheme unveiled by Meswani puts the Ivy League club and top Indian management institutes right on top, it also allows for employees to go forth as 'lifelong learners' by choosing programs that interest them or are relevant to their particular area of work.

Reliance has extended a generous coverage for staff and their families both towards preventive care and treatment-- with no limit on some categories, a company official said.

"Employees, including their spouses, can get free and comprehensive health check-ups at top institutions including Sir HNH Hospital. The benefit fetches an exhaustive list of tests, and preventive check-ups at some of the most renowned health check-up facilities."

"Financial support to the members of a deceased employee's family is also a part of this policy."

Employee security first

For private sector employees aspiring to study while holding on to a job, it is often medical coverage that causes the most stress. Healthcare costs are routinely high in the Western world, particularly America, where even those covered by premium insurance end up paying huge amounts out of pocket.

Reliance employees enjoy free consultation by medical specialists every week at select sites.

Reliance says expatriates consistently rate "employee security" as their No 1 favorite employee benefit at the company, driven by services like 24X7 assistance to employees and their family members in case of any medical, accident, fire or security related emergencies.

"The service which is currently provided in Mumbai, Navi Mumbai and Thane areas has many success stories coming from both domestic and expatriate employees," says Reliance.

India changing tax laws for stability, predictability: Arun Jaitley

India is gradually transforming most of its taxation laws for a greater degree of stability and predictability, Finance Minister Arun Jaitley today said, stressing that the proposed Goods and Services Tax (GST) is a major step in this direction.

"It has been our effort in India to gradually transform and change most of our taxation laws, put to rest various disputes and issues which have been pending and make sure that the scope of discretions is eliminated and there is a greater degree of stability and predictability as far as taxation laws are concerned," Jaitley said.

In a video message to an inaugural global conference on legal matters being held here on January 21-22, Jaitley noted investors' preference for stability of laws and dislike of uncertainty and assured them that India is "seeking to bring about convergence (of laws) among the states in India too".

"One major step needed to increase the ease of doing business, is to reduce inter-state variation and the barriers to inter-state trade," Jaitley told some 500 delegates from 40 countries attending the conference on 'Doing Business Across Asia: Legal Convergence In An Asian Century'.

In several areas, the Indian government has put out a model law encouraging their adoption by the states. "The proposed Goods and Services Tax is a major step in this direction," he said.

The net impact of the GST, once it is put into force, is that there will be a seamless transfer of goods and services across the country.

"There will be uniformity in taxation rates, there will be much greater compliance and obviously certainty... it's going to help India's GDP," he said.

The GST Bill has been pending in the Rajya Sabha since the past three sessions. The opposition Congress wants no additional cess and a constitutional cap of 18 per cent on the tax. Although the Central Government has agreed to the first condition and has even agreed to limit the GST, it refuses to put down the cap in the Constitution.

The Central Government, which had initially set a deadline for rolling out the tax as April 1, has been attempting to broker peace and get the Bill passed in the Budget Session, which will begin in the second half of February.

Jaitley, at the same time, pointed out that an artificial or coerced push to convergence can backfire, citing the experience of the banking regulation in the European Union.

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"If India despite its massive population and unparalleled diversity has remained strong and united political and economic unit, it is partly because of the freedom given to states to be diverse in their laws and regulations.

"Some degree of divergence in practice also allows for experimenting with multiple models," he said.

"The fact that India's central bank did not fully subscribe to the then global consensus of free flows of financial capital, is credited with insulating India from the global financial crisis of 2008.

"The fact is that businesses need a level of tolerance for diversity of laws if they are to exploit the opportunities that come from geographical diversification," said Jaitley.

Jaitley applauded the launch of Asian Business Law Institute (ABLI) today, whose members are India, China, Australia and Singapore.

"I would call upon the Asian Business Law Institute to be attentive to the factors and arguments that may be in favour of retaining diversity. The institute should engage constructively with those holding the opposing points of view especially those who are outside the business community," he said.

A push for convergence, which is seen as driven entirely by the interests of business, may not be socially sustainable. In the long-run, such convergence may not be even in the interest of businesses, he said.

"Hence, I call upon you to seek 'optimal convergence' a convergence which takes into account the benefits of convergence but recognises that there will always be some need for diversity of laws," he said.

Singapore-based ABLI, which will have more Asian countries as members, aims to be a platform for discussions and conversations on commonly beneficial laws in member countries for businesses and commerce across the region.

Ford Mustang to be Launched on January 28

© Provided by MotorTrend India MotorTend Image One of the most evocative and iconic cars in automotive history, the Ford Mustang, will be launched in India on the 28th of this month; at long last! Developed by the legendary Lee Iacocca, this 6th generation Mustang debuted on the 50th anniversary of the brand and it will be positioned as the halo vehicle of the Ford India fleet.

© Provided by MotorTrend India Ford Mustang Rear The Mustang is rightly credited with the creation of the pony car class, a segment of cars which had long bonnets, a low slung profile and stubby rear sections (all to give them a racy outline) with a serious performance inclination. Adhering to this image, the Mustang will be most likely made available in India with a 5.0 litre V8 petrol engine that belts out 437 bhp. In other markets, the Mustang is also available with a 2.3 litre, 4 cylinder Ecoboost engine and a 3.7 litre V6. Gear shifts will probably be taken care of by a 6 speed automatic transmission with paddle shifters.

Features on this car (apart from a sonorous exhaust note that comes as standard!) include 19 inch alloy rims, high performance brakes, a rear diffuser, puddle lamps that project the Mustang logo onto the ground when the doors are opened, projector headlight clusters, ambient interior illumination and a top of the range infotainment system. The car will offer the performance-oriented Indian car buyer an alternative to the already well established selection of sports cars available in the country.