Thread by @svickram

With GDP hitting 5%, there is mushrooming of experts who are giving various views as why economy has slowed down. Interestingly majority of them agree on one point thats is demonetisation and GST and other blah blah

1/n

Well here is counter point - If it was not for demonetisation, economic crisis would have hit us 2 years back. Demonetisation created a push of almost $11 bn to rural households (through money laundering) and kept rural consumption high

2/n

Some what culprit has been botched implementation of GST and Demo by babudom unfortunately no action was taken to control / manage it.

3/n

This Govt despite talk of minimum govt and control of bureaucracy, ended up being fully housetrained by it. back to economy - so what has killed the economy

4/n

Well go back to 2008 - during world economy crisis, India remain afloat and how - by rescheduling NPAs and imagining them to be normal loans. This continued greening of the book (or imagining them green) has to end some day. It was ending in 2017 but saved by demonetisation.
5/n

Like any other economy, Japan / US, Indian economy has been hit by Housing.

Today unfinished houseing inventory is anywhere between $25 bn to $30 billion based on various sources.

6/n

$25 bn to $30 bn capital locked !! means what

On consumer side - that means is buyers are still paying EMI / Rent or have this money stuck somewhere and this has taken the ability of these consumers to spend same money on new house, cars, travel or high end items.

7/n

On other spectrum, so many suppliers from cement to steel to smalll time vendors are without any hope of recovering this sunk money.

8/n

This is $25 bn / $35 bn shock in liquidity given the velocity of money can easily translate into $ 50 bn to $100 bn money locked out of system ( depending on as how you wish to look at it)

9/n

A household with a loan of 60 lakh for a house which is never going to happen, is not looking to buy a new car or another house or doinf another capex. It is trying to recoup the loss. and this missing $25 bn has triggered all the downstream lack of consumtion

10/n

Interestingly Real estate was killed by two Great men
1. by Manmohan singh : he kept it artificially inflated by evergreening the books rather than fixing the sector in 2008

2. by RaghuRam Rajan by stoping bank exposure and shutting liquidity without fixing the real problems.

Further 2004 onwards central bank focussed on inflation targeting ie high interest rate without resolving liquidity situation for SME and Govt rather than creating an operating environment start doing stuff like Mudra loan etc

Unfortunately Govt is doing everything other than solving this lock up of 12/n$30 bn. Indian Govt will have to come with something like STUTI ( Steel sector bail out in 2001) or US Govt bail out of 2008 to reignite the flow of capital and create sense of money in general public

But even before that, This Govt will have to come out of this black money syndrome and stop measuring India’s data with OECD countries. If you wish to have OECD countries tax : GDP ratio, get that per capita income first and then that quality of life and then come to Tax GDP

ratio and till then benchmark against China, Indonesia, Thailand etc ( all these are doing far better than us)

Time has come to escape from UPA led economy model and start thinking in NDA mould.

15/n

The definition of insanity is doing the same thing over and over again and expecting a different result. ~ Einstein

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