## The Delhi/NCR real estate market is dead

The real estate consultant Knight Frank has released a research report on the real estate market in Delhi and the National Capital Region (NCR). The most important point in the report is that home sales in Delhi and NCR have crashed by 50% to 14,250 units, during the period January and June 2015, in comparison to the same period last year.

The launch of new homes has also crashed dramatically by 68% to 11,360 units, during the period January and June 20115, in comparison to the same period last year. The total number of unsold homes in Delhi and NCR currently stands at around 1.89 lakh units as per Knight Frank.

Hence, the quarters to sell unsold inventory has jumped dramatically. As of June 30, 2015, the quarters to sell unsold inventory number was at 19 quarters. What does this mean? Knight Frank defines quarters to sell unsold inventory as: “The quarters to sell unsold inventory (QTS) is the number of quarters required to exhaust the existing unsold inventory in the market. The existing unsold inventory is divided by the average sales velocity of the preceding eight quarters in order to arrive at the QTS number for that particular quarter.”

Hence, quarters to sell unsold inventory is derived by dividing the total number of unsold homes currently, by the average rate at which homes have been selling over the past eight quarters.

Given that the average sales over eight quarters or two years is considered, the current average sales rate is lower than the overall average sales rate. Hence, if the quarters to sell unsold inventory were to be calculated using the latest average sales rate, the number would be even higher than 19 quarters.

Let’s do some basic maths and try and understand this. The total unsold inventory of homes in Delhi and National Capital Region stands at 1,89,678 units. The quarters to sell unsold inventory is 19 quarters. This means that the average sales rate for the last eight quarters thus stands at 9,988 units (1,89,768 divided by 19).
What is the latest sales rate? For the first six months of 2015 the total number of homes sold in Delhi were 14,250 units. This means a sales rate of 7,125 units (14,250 divided by 2) on an average, over the last two quarters.

If this number were to be considered as the average sales rate, then the quarters to sell unsold inventory would jump to 26.6 quarters (1,89,678 divided by 7,125) . What does this mean? If the total number of unsold homes continue to sell at the rate that they are currently selling at, it would take more than six and half years (26.6 quarters divided by 4), to sell them totally. And this, if no new homes were to be built in the days to come.

As can be seen from the accompanying graph, the quarters to sell unsold inventory has jumped big time over the last one year.

 Quarters To Sell (QTS) Unsold Inventory Analysis

As Knight Frank points out: “NCR has moved from a quarters to sell unsold inventory of 14 to 19 in a six-month period. Though January to June 2015 was the leanest half in terms of new launches, the absence of sales velocity has pushed the quarters to sell unsold inventory to nearly 5 years.”

In fact, as the earlier calculation shows the actual quarters to unsold inventory might be more than six and a half years. This is the kind of mess that the real estate sector in the Delhi and National Capital Region is in. Some of the unsold inventory is more than three years old, as can be seen from the following graph.

 Micro-Market-Wise QTS vs Age Of Inventory

Data Source: Knight Frank Research.
In fact, to realise how quickly the situation is deteriorating we need to look at how things stood at as on June 30, 2014, a year earlier. The total unsold inventory one year back stood at 1,67,000, data from Knight Frank tells us. The quarters to sell unsold inventory stood at 9. One year later it is at 19.

Also, the average sales rate was at 18,556 units (1,67,000 divided by 9). Currently it is at 9,987 units, which is a fall of more than 46%, during the course of one year. As Knight Frank points out: “The opening up of new land parcels for development while the existing ones were still not fully utilised is seen as one of the reasons behind the inventory pileup in NCR.”

What makes the situation worse is that new supply (despite falling) will keep hitting the market. As of December 2014, 1,92,568 units were under various stages of construction in Delhi and National Capital Region. The latest report of Knight Frank does not provide an updated number. But given that only 11,360 new homes hit the market, the under-construction number as on June 30, 2015, cannot be significantly different from the December 2014 number.

To conclude, the real estate market in Delhi and the National Capital Region is dead. It will take many years for this market to recover. Your money will be better invested somewhere else.
Postscript: Hopefully, next week I won’t write on real estate.

The column originally appeared on The Daily Reckoning on July 31, 2015

## The “confirmation bias” of a real estate investor

Vivek Kaul

I have been writing quite a lot on real estate recently. Given that, I had thought that I will take a break from writing on real estate for some time. But that I guess is not going to happen. So here is one more column on real estate.

As I have pointed out in the past, every time I write a column on real estate, people write to me with reasons as to why real estate prices in India, can never fall. The reasons usually offered are population growth, not enough land, inflation and black money. I have debunked these theories at various points of time, so I won’t get into these reasons all over again.

But I would like to point out that real estate prices in India did crash between the mid 1990s and early 2000s. As an August 1997 newsreport in the India Today magazine points out: “Be it Mumbai’s ‘golden mile’, Nariman Point – the most expensive stretch of real estate in the world – or Somajiguda in Hyderabad; Delhi’s commercial hub Connaught Place or Koregaon Park in Pune; Bangalore’s pulsing heart M.G. Road or the sedate T. Nagar in Chennai. Each of these upmarket addresses, the most sought – after in their respective cities, are now dotted with unoccupied apartment blocks, unwanted commercial complexes and office space purchased at rates too hot to handle today.”

And this led to a huge real estate crash. “For the country’s over Rs 1,00,000 crore real estate business-one-twelfth the size of the GDP – it has been a crash without precedent. Between mid-1995, when the real estate boom peaked, and mid-1997, prices have fallen a bruising 40 per cent,” the India Today report newsreport further pointed out.”

The irony is that all the reasons that are offered now in favour of real estate prices not crashing, were as valid then, as they are now. But real estate prices did fall. So, real estate prices do fall, it’s just most people don’t remember about it, given that they haven’t fallen for a while now.

One of the newer reasons that has been offered in the recent past is that the government won’t allow the price of real estate to fall. This is because politicians have their ill-gotten wealth invested in real estate. Another corollary to this was offered to me by a friend yesterday who citing a discussion he had on a WhatsApp group said that the government will not allow the price of real estate to fall by more than 20%. If the government allows the real estate prices to fall more than 20%, the banks will end up with a huge amount of bad loans.

The problem with this argument is the assumption that the government can control these things. If it could, the banks would not be sitting on the massive amount of bad loans that they already are.

Let’s take the case of the Chinese stock market. On July 27, 2015, the Shanghai Composite Index fell by 8.5% during the course of a single day. It would have fallen more. But that did not happen given that the rules in China prevent share prices from moving freely once they have risen or fallen by 10% during the course of a single day.

This despite the Chinese government doing everything within its power to ensure that the stock market did not fall. It banned short selling. It banned initial public offerings, so that people buy shares already listed in the market. It banned investors with more than 5% of shares in any company, from selling those shares over the next six months.

Over and above this, the government got stock brokerages to buy shares. As Wei Yao of Societe Generale points out in a recent research note: “ The Ministry of Finance, one of the big shareholders of listed financial institutions, promised not to sell its holding and several central government SOEs[state owned enterprises]…started to buyback shares.” Despite all these measures the Chinese market fell by 8.5% in a single day, its biggest fall since 2007.

The Chinese government has way more control over the Chinese economy than the Indian government will ever have over the Indian economy. And if the Chinese government hasn’t been able to prevent the stock market from falling, what are the chances that the Indian government will be able to prevent the real estate market from falling?

The Shanghai Composite Index has fallen by close to 27% between June 12 and July 29, 2015. This, despite the government taking multiple measures to arrest the fall. The moral of the story is that the governments cannot prevent big market falls.

Another point that I want to make here is regarding the people who are going around saying that real estate prices will not fall and that real estate prices never fall. These are essentially individuals who make money through real estate. Either they own multiple homes and are sitting in the hope of prices continuing to go up or they work for the real estate industry.

Such individuals suffer from a confirmation bias. As John Allen Paulos writes in A Mathematician Plays the Stock Market: ““Confirmation bias” refers to the way we check a hypothesis by observing instances that confirm it and ignoring those that don’t. We notice more readily and even diligently search for whatever might confirm our beliefs, and we don’t notice as readily and certainly don’t look hard for what disconfirms them.”

Given that their incomes depend on real estate prices continuing to go up they refuse to look at even the most basic evidence. Real estate prices have gone way beyond from what most people can afford. At prices homes are currently selling at, even the Ritchie-Rich are having a difficult time buying.  As a research report brought out by real estate consultant Knight-Frank points out: “On the other hand, for end users, high property prices and low income growth continue to be the top concerns.”

And this explains why real estate builders have been unable to sell homes.  The Knight Frank report talks about the sad state of affairs in the Mumbai Metropolitan Region (MMR): “The MMR residential market contracted further in H1 2015 (January to June 2015). In comparison to the preceding half yearly period of H2 2014 (July to December 2014), absorption and new launches shrunk by 22% and 30%, respectively. Housing sales of 28,446 units and new launches of 18,887 units made H1 2015 the worst half-yearly period in the post global financial crisis era.”

So here is a real estate consultant telling us that the overall Mumbai real estate scene is in a mess. It’s never been so bad since 2008. And Mumbai is not even the worst performing real estate market in the country. That title goes to Delhi.

Despite all this, those whose incomes depend on real estate continuing to do well, are still telling us that prices won’t come down. I really don’t know what they are smoking but as the American journalist Upton Sinclair once said: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

A few years back I had a similar experience when those associated with the insurance industry kept telling us that unit linked insurance plans (Ulips) are the best mode of investing. We all knew what happened to those who invested in Ulips.

The column originally appeared on The Daily Reckoning on July 30, 2015

## Buyers can’t be fooled all the time: Lessons from a 50% fall in home sales in Delhi

Vivek Kaul

If you are still in denial that all is well with the real estate sector, this should wake you up. The real estate consultant Knight Frank has released a research report in which it points out the depressing state of the real estate sector in Delhi and the National Capital Region.

As analyst Ankita Sood writing for Knight Frank points out: “The market registered a year on year dip of 50%, with 14,250 units sold.” Hence, home sales in the National Capital Region for the period January to June 2015 dropped by 50% in comparison to the same period last year.

At the same time the number of new launches also fell dramatically by 68% in January to June 2015 in comparison to the same period last year. The new project launches stood at 11,360 units.

There are a number of lessons that can be drawn from these numbers:

1) Investors do not have endless patience: The real estate market in and around Delhi has primarily been investor driven. This is primarily because of the massive amount of black money that the city manages to generate. Black money is money which has been earned but on which taxes have not been paid.
Falling home sales clearly indicate that investors are no longer interested in buying more new homes, given that they are still sitting on the ones they had bought over the last few years. And the returns on these apartments have been negative or next to nothing. Hence, investors are looking to sell out the homes they had bought.

As Sood writes: “The growth rate of the weighted average price has been witnessing a downward trend since 2013, and has slowed down considerably…Long-term investors who were with the developers over the 3–4 year construction period are now looking for an exit, owing to the depressed market sentiments. Stagnant prices and delayed project deliveries have contributed towards investors entering into a ‘distressed resale’ mode, as they are now offering to exit at a 15% to 20% discount than the primary market price.”

This “offer to exit” at 15 to 20% discount tells us very clearly that real estate prices do fall. And as more and more investors hit the market to sell what they have been sitting on, prices will fall further.

2) The total amount of black money coming into real estate has been coming down: As far as the metropolitan cities in India is concerned, the maximum amount of black money goes into real estate in Delhi. As analysts Saurabh Mukherjea and Sumit Shekhar of Ambit write in a recent research report titled Real Estate: The unwind and its side effects: “In Delhi, the ratio of unaccounted value of real estate transactions to the total value is as high as 78%. The same ratio is 50% in Kolkata and Bangalore. In smaller towns and semi urban centres, nearly 100% of property transactions are conducted in cash.” In Mumbai, they put the ratio of black money to total value at between 10-30%.

Hence, among the bigger cities, the maximum amount of black money goes into real estate in Delhi and the National Capital Region. And this has been coming down. How can we conclude that? The Delhi and the National Capital Region have approximately 189,678 unsold units, Knight Frank data suggests.
If black money were coming into real estate at the same pace as before, this number would have been much lower. A fall in new launches by 68% is another good indicator that black money coming into the sector has been coming down.

3) You can’t fool all the people all the time: The Delhi and the National Capital Region has had too many instances of builders disappearing as well as not delivering homes on time. As Santhosh Kumar, CEO – Operations & International Director, JLL India, wrote in a recent research note: “The National Capital Region (NCR) has some locations that buyers are best advised to avoid. Various issues like delays in delivery, oversupply, speculation and infrastructure deficit have been plaguing these markets, rendering them unsuitable for first-time home purchase.”

Kumar gives the example of the Greater Faridabad area. As he writes: “Many instances of fly-by-night operators (and even some established developers) reneging on their commitments to buyers have been evident in Greater Faridabad. There have even been cases of developers absconding altogether after selling as many flats as they could without finishing the projects.”

Obviously, such fraud cannot go on forever. Buyers have come to know about these things over a period of time and have decided to stay away from buying real estate. In fact, Kumar even warns people to stay away from under-construction property, such is the state of real estate in Delhi and National Capital Region.
As he writes: “Keep away from pre-launches. Instead, look for bargain buys when investors exit. At that point of time, construction will be closer to completion or completed, and Gurgaon is witnessing distress sales from investors.”

A real estate consultant asking people not to invest in pre-launches needs to be taken very seriously.

4) An end user market:  With investors staying away and the total amount of black money finding its way into real estate coming down, if things continue in this way, Delhi and the National Capital Region real estate market, will become a market which is driven by those people who are looking for a home to live in, rather than invest. In fact, Sood of Knight Frank suggests that is already the case: “NCR is now an end user-driven market – developers restrict new launches, while buyers carefully select clean projects.”

5) You can’t keep making a product which the consumer does not want: The main reason why the real estate sector is in a mess is because prices have gone way beyond what most people can afford. This is a fundamental reason that most people associated with real estate refuse to acknowledge. On being given this reason, they come up with reasons like there is corruption in the government, laws are complicated, so on and so forth.

These might be genuine reasons but that does not negate the point that real estate prices have gone way beyond what most people can afford. Even the “rich” that real estate companies were building for cannot afford real estate at current prices. A product cannot be endlessly priced above what people are willing to pay for it.

As Knight Frank points out: “Policy fallacies such as the opening up of new land for development, allotment of group housing licences in areas with no infrastructure, project delays due to litigations and the liquidity crunch, and stagnant incomes[emphasis is mine] have affected NCR’s real estate appetite adversely.”

It is nice to see a real estate consultant acknowledge stagnant incomes as one of the reasons for one of the mess in the real estate sector. What it means in simple English is that incomes haven’t been able to keep pace with real estate prices i.e. prices are now way beyond what people can afford. And this cannot go on forever.

The column first appeared on Firstpost on July 30, 2015

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

## Too much debt, too little growth and too low interest rates

Vivek Kaul

The financial crisis that started in September 2008, after the Wall Street investment bank Lehman Brothers, went bust, led to the economic growth stagnating in large parts of the world.

The central banks around the world tackled this by cutting interest rates to very low levels. The hope was that at low interest rates people would borrow and spend. At the same time, corporates would use this opportunity to borrow and expand. And this would lead to economic growth coming back. QED.
But that is not how things panned out. Instead of prospective consumers borrowing and spending money, large institutional speculators borrowed money at low interest rates in large parts of the Western world and invested it in financial markets all over the world. This excessive inflow of “easy money” has led to bubbles in financial markets in large parts of the world.

This point is made in the latest annual report of the Bank of International Settlements (BIS) based out of Basel in Switzerland. The BIS is often referred to as the central banks of central banks. As the BIS annual report for the financial year ending March 31, 2015 points out: “very low interest rates that have prevailed for so long may not be “equilibrium” ones, which would be conducive to sustainable and balanced global expansion. Rather than just reflecting the current weakness, low rates may in part have contributed to it by fuelling costly financial booms and busts. The result is too much debt, too little growth and excessively low interest rates. In short, low rates beget lower rates.”

This is a very interesting point. What BIS is saying is that low interest rates have led to very little economic growth. At the same time the total amount of global debt has gone up (as can be seen from the accompanying chart). In order, to tackle this low economic growth rate, the central banks have either cut interest rates further or maintained them at their low levels. In fact, several central banks in Europe have also taken their interest rates into negative territory i.e. you have to pay money in order to deposit money with them. Hence, lower interest rates have led to further lower interest rates without creating much economic growth.

As can be seen from the accompanying table, the total global debt has touched around 260% of the global gross domestic product (GDP). In 2008, it was around 230% of the global GDP. It’s a weird economic world that we live in. While the low interest rates did not lead to economic growth as was expected, they did lead to financial market booms.

 Interest rates sink as debt soars

As Gary Dorsch of Global Money Trends newsletter puts it in his latest column: “Cheap money encourages more debt and creates financial booms and busts that leave lasting scars on the economy. They underpin both the potentially harmful high risk-taking in financial markets, while subduing risk-taking in the real economy, where investment is badly needed. And while increases in interest rates could cause stock prices to fall, – the likelihood of turmoil is only increased by waiting.”

Long story short—the longer the era of easy money continues, the worse the crash will be, as and when it comes. This is a point that the BIS makes it in its report as well, where it says: “Risk-taking in financial markets has gone on for too long. And the illusion that markets will remain liquid under stress has been too pervasive. But the likelihood of turbulence will increase further if current extraordinary conditions are spun out. The more one stretches an elastic band, the more violently it snaps back.”

This basic elastic-band analogy should tell us very clearly how delicately poised the global economy is with all the excessive debt that has been built up over the last few years, in the hope getting economic growth going again.

The BIS feels that the era of easy money and very low interest rates needs to be reversed as soon as possible. “Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialise at some point. Of what use is a gun with no bullets left? Therefore, while having regard for country-specific conditions, monetary policy normalisation should be pursued with a firm and steady hand,” the BIS annual report points out.

The question is will the central banks take the risk of raising interest rates in the days to come. The economic recovery (whatever little of it has happened) continues to remain very fragile. And will any central bank governor (or Chairman) take the risk of killing even that by raising interest rates? As John Maynard Keynes once said: “’Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

It is also worth asking here if central banks will sacrifice the short-term for the long-term? As the BIS report points out: “Shifting the focus from the short to the longer term is more important than ever. Over the past decades, it is as if the emergence of slow-moving financial booms and busts has slowed down economic time relative to calendar time: the economic developments that really matter now take much longer to unfold. Meanwhile, the decision horizons of policymakers and market participants have shortened. Financial markets have compressed reaction times and policymakers have chased financial markets more and more closely in what has become an ever tighter, self-referential, relationship.”

The Federal Open Market Committee (FOMC) of the Federal Reserve of the United States is meeting over July 28-29, 2015. Many experts have said time and again that the Federal Reserve will raise interest rates this year. The Fed chairperson Janet Yellen has hinted at the same as well. Let’s see if FOMC comes around to doing that.

The column originally appeared on The Daily Reckoning on July 29, 2015

## Rajan is right, the window dressing of bad loans by banks should end

Vivek Kaul

The Reserve Bank of India (RBI) Raghuram Rajan was speaking at a function to inaugurate the Meghanand Desai Academy of Economics in Mumbai, yesterday (July 28, 2015). Normally, whenever the RBI governor makes a speech, a copy of the speech is made available on the RBI website.

But as I write this on the afternoon of July 29, 2015, the speech is yet to be uploaded on the RBI website. Media reports suggest that the PR agency handling the event sent out a press release yesterday. A report in The Economic Times quotes the press release and points out that one of the things that Rajan had said during the course of the speech: “Declaring an NPA (non-performing asset) is primarily an issue of cleaning up accounting…The market fully understands what is truly non-performing. Moreover, it gives the wrong incentives, as by avoiding NPAs it merely postpones the problem. There is confused understanding of this problem.”

After sending out the press release, the PR agency withdrew the release and sent out another release in which the above statement attributed to Rajan in the first release was missing. The event was closed to the media.

Irrespective of whether Rajan said it or not, the fact that banks need to recognise their non-performing assets i.e. loans which have gone bad, on time, is a very important point. What makes this point even more important is the fact that the lending carried out by public sector banks over the last few years, particularly to the infrastructure sector, will continue to go bad in the days to come.

In a research report titled Current Worries Crisil Ratings estimates that “around 46,000 mw of power generation projects (36,000 mw coal-based and 10,000 mw gas-based) are in distress today. Loans to these projects are around Rs 2.1 lakh crore, with about two-thirds lent by public sector banks.”
Of these loans “as much as Rs 75,000 crore of loans – or nearly 15% of aggregated debt to power generation companies — are at risk of becoming delinquent in the medium term.”

“Further, close to Rs 1.9 lakh crore of loans to six weak discoms, wherein the moratorium under the financial restructuring package (FRP) is ending in the next 18 months, are also at risk if timely support is not extended by the central or state governments,” Crisil points out.

The rating agency feels that the risk is highest in 16,000 mw of projects. “These projects don’t have strong sponsor company support and are not expected to turn viable in the long run even if they are structured under the 5/25 scheme. The exposure of banks and FIs to them was about Rs 75,000 crore as on March 31, 2015. CRISIL believes accretion of non-performing assets (NPAs) from these accounts could be high in medium term.”

This is a worrying sign given that loans to the power sector form 8.3% of the total advances made by scheduled commercial banks. In case of the public sector banks the number is higher at 10.1%. Further, advances to the power sector form 16.1% of the total stressed advances. In case of public sector banks, the number is even higher at 17.3%.

The stressed asset ratio is the sum of gross non performing assets (or bad loans) plus restructured loans divided by the total assets held by the Indian banking system. The borrower has either stopped to repay this loan or the loan has been restructured, where the borrower has been allowed easier terms to repay the loan by increasing the tenure of the loan or lowering the interest rate, which entails a loss for the bank.

Hence, if the stressed advances of public sector banks to the power sector are at 17.3%, it means that of every Rs 100 of loan given to the power sector by the banks, Rs 17.3 has either gone bad or has been restructured.

The power sector in India has been facing many problems. As the RBI Financial Stability Report released in June 2015 points out: “The power sector in India…has been facing significant problems in terms of fuel availability / linkages, project clearances, social activism and aggressive bidding in coal block auctions by power producers resulting in lower plant load factors (PLF). Dependence on imported coal, which is three to four times more expensive, impinges on the bottom lines of companies.”

All these reasons have led to power companies not being able to pay the loans that they had taken on. And this is likely to continue in the days to come, meaning more trouble for banks in general and public sector banks in particular.

It is important that as and when these loans turn bad, they are recognised as bad loans. But that is not something that Indian banks have done over the past few years. Their tendency has been to not recognise the problem and kick the can down the road.

In a research note titled A Growing Need for Indian TARP, Anil Agarwal, Sumeet Kariwala and Subramanian Iyer, analysts at Morgan Stanley point out: “The current managements’ policy of “extend and pretend” is causing banks to move further into problems.”

What do they mean by this? Crisil Research estimates that 40% of the loans restructured during 2011-2014 have become bad loans.

A loan is said to have been restructured where the borrower is allowed to repay the loan over a longer period of time than was originally scheduled. Or the rate of interest on the loan is decreased. If 40% of the loans that were restructured have gone bad over the years, what it clearly shows is that banks have used the restructuring route to essentially kick the can down the road and not recognise the bad loan problem upfront.

The Morgan Stanley analysts quoted earlier expect nearly 65% of restructured loans to turn into bad loans. This is what Rajan was supposedly worried about in his speech in Mumbai yesterday. As Crisil Research points out in a research note titled Modified Expectations: “Reported gross non performing assets[bad loans] will still remain at elevated levels as some of the assets restructured in the previous 2-3 years, especially in the infrastructure, construction, and textiles sectors, degenerate into non-performing assets again.”

Another sector where the banks have been busy window dressing their bad loans is the steel sector. The sector is in a mess with too much debt and is earning too little money to be able to repay it. As Neelkanth Mishra India Equity Strategist, Credit Suisse points out in a recent column in The Indian Express: “At the end of the last financial year, the total debt outstanding to Indian steel companies was nearly \$50 billion. This was nearly ten times the industry’s ebitda (profits before interest, taxes and depreciation are deducted), a good proxy for cash profits.” What this clearly tells us is that the steel industry has borrowed way too much and is really not in a position to repay.

The industry continues to be in a mess due to various reasons. As the RBI Financial Stability Report points out: “the industry is beset with many problems: inadequate capital investments, shortage of iron ore, low paced mechanisation of mines, lower level of capacity utilisation of coal washeries, dependence on imported coking coal (the quality of most of the domestic coking coal is not considered good for steel production)…land acquisitions and environmental clearances issues…deceleration in domestic demand.”

In fact, the industry is even finding it difficult to pay the interest on the debt that they have taken on from banks. As Mishra writes: “Companies are borrowing from banks to pay their interest—as underscored by the many “refinancing” deals recently for broke steel companies, where an additional R5,000-8,000 crore were lent by banks.”

Guess, Rajan if he said what he did, was merely stating the obvious.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on July 29, 2015