Economic Survey: Indian Companies Are Trapped In A Chakravyuha


The Economic Survey released before the budget is brought out by the chief economic adviser to the ministry of finance. Arvind Subramanian is the current chief economic adviser.

In the second chapter of the Economic Survey of 2015-2016, Subramanian makes a very interesting point: “The Charkravyuha legend from the Mahabharata describes the ability to enter but not exit, with seriously adverse consequences. It is a metaphor for the workings of the Indian economy in the 21st century.”

What he means here is that Indian companies continue to operate, irrespective of the fact whether they make money or not. In a free market as firms innovate and grow, they end up pushing out other firms which shut down. But that doesn’t seem to be happening in India.

As the Survey points out: “In principle, productive and innovative firms should expand and grow, forcing out the unproductive ones. So surviving firms should be much larger than new ones…In the US the average 40-year old plant is 8 times larger (in terms of employment) than a new one. Established Mexican firms are twice as large as new firms. But in 2010 India the average 40-year-old plant was only 1.5 times larger than a new one.”

In fact, the situation has deteriorated since the late 1990s. In 1998-99, the ratio of the average 40-year-old plant in comparison to the new ones was 2.5. What this tells us is that “there are not enough big firms and too many firms that are unable to grow, the latter suggesting that there are problems of exit.”

What this basically means is that firms which should be shutdown are not shutting down due to various reasons. Hence, there is an exit problem. A situation that is best expressed by the Hotel California song, sung by The Eagles: “You can check out any time you like, but you can never leave.” As the Survey points out: “India unlike many countries seems to have a disproportionately large share of inefficient firms with very low productivity and with little exit.”

The public sector enterprises lead the pack. The accumulated losses of sick public sector enterprises as of 2013-2014 had stood at Rs 1.04 lakh crore. Then there is the civil aviation sector (read Air India) which has seen losses for seven straight years in a row. In 2013-2014, the losses were at Rs 2,400 crore.

Over and above this there are power distribution companies owned by various state governments with accumulated losses of Rs 2.3 lakh crore. Also, there is the problem of public sector banks, which have seen a fresh infusion of capital of Rs 1.02 lakh crore between 2009-2010 and the first half of this financial year.

What this tells us is that many firms which should have been shut down long back are still in operation. In case of public sector enterprises, it is because of the government continuing to bail out these firms. As the Survey points out: “Exit is impeded often through government support of incumbent, mostly inefficient, firms. This support—in the form of explicit subsidies (for example. bailouts) or implicit ones (tariffs, loans from state banks)—represents a cost to the economy.”

What does this mean? It means that the government keeps loss making firms going by bailing them out. The trouble is that every extra rupee that the government spends on the bailout of these firms by taking on their losses, it has to borrow. And for every rupee that the government borrows, there is one rupee less for the private sector to borrow.

This means that the accumulated losses of Rs 1.04 lakh crore of public sector enterprises is money that the private sector could have borrowed. It also means that Rs 1.02 lakh crore spend through the fresh infusion of capital into public sector banks is money that the private sector could have borrowed.

If the government borrows more, it means there is less for the private sector to borrow, and in the process it has to pay a higher rate of interest than it typically would in case of lower borrowing by the government. This essentially leads to “greater interest costs and reduced private sector investment activity”.

Also, in a capital scare country like India, misallocation of capital to keep loss making companies running, is not quite the best thing to do.

It raises the question as to why does the government keep running loss making public sector enterprises? It also raises the question as to why does the government need to own more than twenty-five public sector banks?

Thankfully, the Narendra Modi government has made some effort towards sorting out the mess in the power distribution companies through the UDAY scheme.  Some efforts have also been made towards sorting out the mess in the public sector banking space in the country, though clearly a lot more needs to be done.

But rather ironically the government continues to run loss making public sector enterprises. It continues to own telephone companies, an airline, hotels, a company which makes scooters and a company which used to make bicycles. It also owns a major stake in the country’s biggest cigarette company. How bizarre can it really get?

This also goes totally against the idea of minimum government and maximum governance that Narendra Modi had put forward in the run up to the Lok Sabha elections in 2014, but has since abandoned. One of the main reasons the government has held back in shutting down these companies is that it doesn’t want a run-in with the trade unions, which can get nasty.

Nevertheless, as the Survey points out: “In many cases where public sector firms need to be privatized, the problems of exit arise because of opposition from existing managers or employees’ interests. But in some instances, such action can be converted into opportunities. For example, resources earned from privatization could be earmarked for employee compensation and retraining.”

Also, many public sector enterprises have a large amount of land which can be monetized. This money can go into the government kitty and be used for the development of physical infrastructure. It can also be used to offer the employees an attractive compensation, so that they don’t come in the way of the government shutting down the firms.

As the Economic Survey points out: “Most public sector firms occupy relatively large tracts of land in desirable locations. Parts of this land can be converted into land banks and made into vehicles for promoting the ‘Make in India’ and Smart City campaigns. If the land is in dense urban areas, it could be used to develop eco-systems to nurture start-ups and if located in smaller towns and cities, it could be used to develop sites for industrial clusters.”

This suggestion makes a lot of sense. I hope Narendra Modi has found time to at least read this part of the Economic Survey.

The column originally appeared on Swarajya Mag on February 26, 2016


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

Mr Jaitley’s Search for a One-Handed Economist

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010
Give me a one-handed economist,” quipped the American president Harry Truman, many years back. “All my economists say, ‘on the one hand…on the other’.”

The finance minister Arun Jaitley is currently probably going through the one-handed economist phase as well. There has been a huge debate going on, in the media, whether the government should relax the fiscal deficit target of 3.5% of gross domestic product for the next financial year i.e. 2016-2017, when it presents its budget later this month. Fiscal deficit is the difference between what a government earns and what it spends.

Economists, as usual, are divided on it. Some like the idea of government spending more in order to revive the slow economic growth (or so they like to believe). Others have been highlighting the negative consequences of the government spending more.

This has left Jaitley, who has no background in either finance or economics, and was a part-time politician and a full-time layer, until few years back, confused. As he recently said: “I’ve been consulting all shades of opinion. This is the first time I’ve come across people holding sharply divided views. Each one has a strong argument in his favour.”

The Chief Economic Adviser to the finance ministry, Arvind Subramanian, has been in favour of the government spending more. In the Mid-Year Economic Analysis released in December 2015, Subrmanian had suggested that in a scenario of lower than expected economic growth (as measured by the real/nominal GDP growth) “if the government sticks to the path for fiscal consolidation, that would further detract from demand.” Further, “consolidation of the magnitude contemplated by the government… could weaken a softening economy”. Fiscal consolidation is essentially the reduction of fiscal deficit.

The finance minister Arun Jaitley had talked about fiscal consolidation in the two budget speeches he has made till date in July 2014 and February 2015. In the first speech he said that the government is aiming to achieve a fiscal deficit target of 3% of gross domestic product(GDP) in 2016-2017.

In the speech he made in February 2015, he postponed this target by a year and said that the government will achieve a fiscal deficit of 3.5% of GDP in 2016-17; and 3% of GDP in 2017-18.  Now there is pressure on the finance minister to abandon the fiscal deficit target of 3.5% of the GDP set for 2016-2017, from one set of economists and the industry.

The trouble is another set of economists does not agree with this. Economist Arvind Panagariya, who happens to be the vice chairman of the NITI Aayog said in January 2016: “I personally don’t think we should be tinkering with the deficit as a percentage of GDP.”
Raghuram Rajan, the governor of the Reserve Bank of India, has also been an advocate of the government sticking to a path of fiscal consolidation. He reiterated the same in a recent speech as well as the monetary policy statement released last week.

One of the interesting points that Rajan made was that India’s overall fiscal deficit position has deteriorated. As he said: “The consolidated fiscal deficit of the state and centre in India is by far the largest among countries we like to compare ourselves with; presently only Brazil, a country in difficulty, rivals us on this measure. According to IMF estimates (which is what the global investor sees), our consolidated fiscal deficit went up from 7 percent in 2014 to 7.2 percent in 2015. So we actually expanded the aggregate deficit in the last calendar year. With UDAY, the scheme to revive state power distribution companies, coming into operation in the next fiscal, it is unlikely that states will be shrinking their deficits, which puts pressure on the centre to adjust more.”

One reason why government’s numbers are different from IMF numbers is because the government of India under-declares its fiscal deficit. How does it do it? The government recognises the disinvestment of shares in public sector units as a revenue rather than as a financing item.

As economist Rajeev Malik of CLSA put it in a recent column in the Mint: “India tends to under-report its fiscal deficit because it counts divestment and other asset sales as revenue rather than a financing item, as is practised by the International Monetary Fund (IMF). Thus, the FY16 budget deficit target—adjusted for divestment—was actually 4.4% of GDP, not 3.9% as officially reported.”

Rating agencies remain strangely silent on this self-serving approach,” Malik validly points out.

What complicates the situation further is that the government follows the cash accounting system and only acknowledges expenses once payment has been made. This has led to a situation where subsidy payments to Food Corporation of India(FCI) and fertilizer companies remain unpaid. The money has been spent by FCI and the fertilizer companies but remains unpaid by the government, and hence is not acknowledged as an expenditure.

The question is where does FCI get this money from? It borrows from the financial market. Why does the market lend money to FCI? It does that because it knows that it is effectively lending money to the Indian government. Hence, this subsidy expenditure has already been incurred by the government but has not been accounted for.

As economist M Govinda Rao put it in a recent column in The Financial Express: “In fact, the cash accounting system hides the real fiscal deficit which is much higher as substantial subsidy payments to Food Corporation of India and fertiliser companies are yet to be disbursed.”

While Jaitley may keep debating whether or not to abandon the fiscal deficit target that he set previously, he needs to tell us clearly what is India’s real fiscal deficit. If that means that he doesn’t get around to meeting the target.

Getting back to Rajan, the RBI governor also raised the question, whether the extra economic growth that will come in because of the government abandoning its fiscal deficit target and spending more, be worth it.

As Rajan said: “Perhaps Brazil offers a salutary lesson. Only a few years ago, the world was applauding the country’s thriving democracy, its robust economic growth, and the enormous strides it was making in reducing inequality. It grew at 7.6 percent in 2010…Paradoxical as it may seem, Brazil tried to grow too fast. The 7.6 percent growth came on the back of substantial stimulus after the global financial crisis.”

In fact, India tried the same strategy in the aftermath of the financial crisis, with the government coming up with a substantial economic stimulus. While this lifted the economic growth for the next few years, it led to a huge increase in corporate debt and high inflation, the aftermaths of which the country is still facing.

The column originally appeared in the Vivek Kaul Diary on Equitymaster on February 8, 2016

Arvind Subramanian: when economists start talking like politicians, we have a problem

During the course of the last financial year, the finance minister Arun Jaitley, repeatedly kept asking the Reserve Bank of India (RBI) to start cutting the repo rate. Repo rate is the rate at which RBI lends to banks and acts as a sort of a benchmark to the interest rates that banks pay for their deposits and in turn charge on their loans.

The RBI finally cut the repo rate twice between January and March 2015. But this hasn’t been enough to get bank lending to start growing at a much faster pace. As of the end of October 2014, lending by banks over a one year period had grown by 11.2%. As of March 20, 2015, lending by banks over a one year period had grown by 8.6%. This, despite the fact that the RBI cut the repo rate twice between January and March by a total of 50 basis points (one basis point is one hundredth of a percentage) to 7.5%.

As I have often explained in the past, a fall in interest rate does not always spur consumption or lead to increased borrowing by corporate firms. As John Kenneth Galbraith points out in The Economics of Innocent Fraud: “If in recession the interest rate is lowered by the central bank, the member banks are counted on to pass the lower rate along to their customers, thus encouraging them to borrow. Producers will thus produce goods and services, buy the plant and machinery they can afford now and from which they can make money, and consumption paid for by cheaper loans will expand.”

But things play out a little differently in the real world. “The difficulty is that this highly plausible, wholly agreeable process exists only in well-established economic belief and not in real life. The belief depends on the seemingly persuasive theory and on neither reality nor practical experience. Business firms borrow when they can make money and not because interest rates are low, Galbraith points out.

Also, by taking about the RBI needing to cut the repo rate, over and over again, the impression that the finance ministry tries to send out is that the RBI is holding back economic growth. And that is really not true. If India has to grow at a much faster rate, then interest rates are just a very small part of the overall puzzle.
There is a lot that needs to be set right at the level of the government—from reforming labours laws to improving the ease of doing business to ensuring that the subsidies offered by the government reach the right people and are not stolen as they go down the system.

Over and above this, there are many projects stalled due to land acquisition issues, lack of environmental clearance or simply the fact that the firm carrying out the project is highly indebted. There is nothing that the RBI can do about these things. It can just hope to set interest rates.

Subramanian also went on to say that: “China is now cutting the interest rate quite aggressively in response to its growth slowing down…We need to respond accordingly.” This is a convenient use of facts as they are.

The People’s Bank of China has cut interest rates thrice since November 2014. In November last year, the Chinese central bank cut the one year benchmark deposit and lending rates by 25 basis points and 40 basis points to 2.75% and 5.6% respectively. There was another small change it carried out, which Subramanian did not talk about in the general statement that he made.

As Wei Yao of Societe Generale points out in a research note she wrote in November: “Along with the rate cut, the People’s Bank of China also lifted the upper limit that commercial banks can offer above the benchmark deposit rates to 1.2 times from 1.1 times. That is, the maximum permitted rate for 1-year deposits was 3.3% (3%*1.1) and is still 3.3% (2.75%*1.2). Given that commercial banks have been losing deposits recently, they will probably choose to stick to the upper bound.”

And what about lending rates? “As for lending rates, the lower bound to the benchmark lending rates was removed more than a year ago. In theory, there is no hard restriction stopping commercial banks from lowering loan rates anytime or by any amount. Therefore, the benchmark lending rate cut is also nothing more than a suggestion,” wrote Wao.

In end February 2015, the People’s Bank cut interest rates again. This time the one year benchmark deposit rate was cut to 2.5% from the earlier 2.75%. Further, the Chinese central bank increased the upper band of bank deposit rates from 1.2 to 1.3 times of the benchmark rates. What did this mean? “As a result, the maximum one year deposit rate that commercial banks can offer is now 3.25% (2.5%*1.3), only 5 basis points lower than the previous level of 3.3% (2.75%*1.2),” wrote Wao.

Earlier this month (May 2015), the People’s Bank cut the one year benchmark deposit rate again by 25 basis points to 2.25%. Nevertheless as Wao writes: “After the cut, the benchmark one-year deposit rate is now at 2.25%, but the ceiling is lifted to 1.5 times of the benchmark, up from 1.3 times previously. Hence, the maximum rate that banks can offer has actually increased from 3.25% (=2.5%*1.3) to 3.375% (=2.25%*1.5), which is even higher than the level (3.3%) at the beginning of this easing cycle.”

Hence, even though the People’s Bank of China has cut the one year benchmark deposit rate by 75 basis points since November 2014, the maximum rate that a bank can pay on its deposits has actually marginally gone up to 3.375% from 3.3% in November. In that sense, there has been no real cut in interest rates.

Now contrast this with India, where the RBI has cut the repo rate by 50 basis points since January to 7.5%. A 50 basis point cut is not very different from a 75 basis point cut. Further, deposit rates in India unlike China are not controlled by the central bank and many banks in India have reduced fixed deposit rates.

Though the cut in deposit rates has not been followed by a cut in interest rate on loans. In late April, the minister of state for finance, Jayant Sinha, had pointed out that, only 21 out of the 91 scheduled commercial banks in the country had cut their lending rates, after the RBI cut its repo rate twice.

To conclude, what this tells us is that Subramanian’s statement was too general to have been made of an economist of his stature. I wouldn’t have been surprised if Jaitley or Sinha would have made such a statement. But coming from an economist of Subramanian’s calibre, this is unacceptable. Also, the ministry of finance needs to realize that people who run the RBI know their job well and it is best if they are left to themselves to do it properly.

The column originally appeared on The Daily Reckoning on May 28, 2015  

Why does Arvind Subramanian want India to outsource its monetary policy to the United States?

Arvind_SubrahmaniyamArvind Subramanian, the chief economic adviser to the ministry of finance, has latched on to the finance minister Arun Jaitley’s formula. During the course of the last financial year, given half an opportunity, Jaitley asked the Reserve Bank of India (RBI) to cut interest rates.
Subramanian did the same yesterday when he said: “
They (other countries) are aggressively easing monetary policy,” implying that the RBI should also cut the repo rate soon. Repo rate is the rate at which RBI lends to banks and acts as a sort of a benchmark to the interest rates that banks pay for their deposits and in turn charge on their loans.
Subramanian also went on to suggest that it was time that India started to imitate China on the currency front. As he said: “If you were to ask me how did China accumulate $4 trillion of reserves, it’s essentially buying it to keep the currency very, very competitive. So, it is a lesson for all of us. It is not what everything China does we should we imitate… but that is the lesson we should learn from.”
The above statement is nowhere as straightforward as it looks. Subramanian talks about China having accumulated $4 trillion of reserves in an effort to keep its currency, the yuan, competitive. What does he mean by this? Chinese exporters get paid in dollars (largely). When they get these dollars back to China, they need to convert them into yuan, given that their expenses are in yuan, they need to pay taxes in yuan and so on.
Hence, the exporters need to sell dollars and buy yuan. This would push up the demand for the yuan and lead to an appreciation of the yuan against the dollar. An appreciating yuan would not be good for exporters given that they would be paid fewer yuan when they convert their dollars into yuan.
Let’s consider the case of an exporter who makes a $1 million. If one dollar is worth 6.2 yuan (as it is now) the exporter would make 6.2 million yuan. But if one dollar has appreciated and is worth 6 yuan, then the exporter would make only 6 million yuan, which is lower. Hence, an appreciating yuan hurts.
Given that China is an export powerhouse, in the normal scheme of things, the yuan should have been appreciating against the dollar, over the years. And that would have hurt Chinese exports making them uncompetitive.
But that hasn’t happened. From October 2011 onwards the value of the dollar has ranged between 6.34 to 6.20 yuan Hence, when a Chinese exporter exports he has a fairly good idea of what kind of money he is going to make in terms of yuan. Between July 2008 and May 2010, the dollar was worth between 6.8 to 6.82 yuan.
The question is how does this happen? The People’s Bank of China, the Chinese central bank, keeps intervening in the foreign exchange market. It buys dollars and sells yuan. In the process it ensures that there are enough yuan going around in the financial system, and the value stays stable against the dollar.
Nevertheless, the intervention by the People’s Bank is not free of cost. As Raghuram Rajan writes in
Fault Lines—How Hidden Fractures Still Threaten the Global Economy: “If it[i.e. the People’s Bank] intervenes a lot, the abundance of renminbi[another name for the Chinese yuan] in circulation will push up inflation.”
How does that happen? When the People’s Bank buys dollars, it has to sell yuan. Where does it get these yuan from? It prints them (or these days creates them digitally on a computer). The money supply in the financial system goes up. As a greater amount of money chases the same amount of goods and services, prices go up.
The People’s Bank has to avoid this. So what does it do? It carries out what is known as an sterilized intervention. The central bank also sells government bonds that it holds in its kitty. When it sells government bonds it gets paid in yuan. In the process, the People’s Bank manages to ensure that the total amount of yuan in the financial system does not go up dramatically, after it has carried out the intervention to hold the value of the yuan.
Then there is another problem. The dollars that the People’s Bank ends up holding in its kitty are primarily invested in bonds issued in dollars, which includes bonds issued by the United States government and its institutions.
The People’s Bank also needs to pay an interest on the government bonds it sells to suck out yuan from the financial system. The interest on these bonds needs to match the interest that the People’s bank earns by investing in the United States.
If the interest to be paid on the bonds being sold by the People’s Bank is higher than the interest that the People’s Bank is earning by investing in dollar assets, then there is a problem. As Rajan writes: “If the interest paid on dollar assets is low, while renminbi[another name for the Chinese yuan] interest rates are high, the central bank will effectively be holding a low-yield asset while issuing a high-yield liability—which means it will incur a loss. If this negative spread were multiplied by $2 trillion worth of foreign reserves(not all dollars, of course) that China has, it would blow a gigantic hole into the Chinese budget.” [The foreign exchange reserves are now $4 trillion, hence the hole would be bigger. Rajan’s book was published in 2010.]
This is something that cannot be allowed to happen. Hence what does China do? As Rajan writes: “A direct effect of such a policy is that China mirrors the United States’ monetary policy. If interest rates in the United States are very low. China also has to keep interest rates low. Doing so risks creating credit, housing and stock market bubbles in China, as much in the United States. With little freedom to use interest rates to counteract such trends, the Chinese authorities have to use blunt tools: for example, when credit starts growing strongly, the word goes out from the Chinese bank regulator that the banks should cut back on issuing credit.”
Getting back to the chief economic adviser Arvind Subramanian—what he is essentially suggesting is that like the People’s Bank of China, the RBI should also more actively manage the value of the rupee against the dollar, in order to benefit the exporters.
But as Rajan so beautifully explains in his book, what China has done comes with costs attached to it. The Chinese government has been able to manage the negatives because it can do things which other governments which are democratically elected cannot do.
Further, the Indian government (or the RBI) does not have the same control over banks as the Chinese government does. During the last financial year, many statements were made to get banks to cut interest rates and increase lending. But that never happened. Also, India has a thriving private banking sector, over which the government has next to no control.
To conclude, why does Subramanian want India to outsource its monetary policy to the United States? This is something only he can tell us.

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

The column originally appeared on Firstpost on May 27, 2015

Economic survey: Are stalled projects at Rs 8.8 lakh crore or Rs 18 lakh crore?


Vivek Kaul

Good decision making is also a function of access to good data. The quality of economic data in India has improved significantly over the years, but it still leaves a lot to be desired. Allow me to explain.
In the Mid Year Economic Analysis released by the ministry of finance in December 2014 it was stated: “There are stalled projects to the tune of Rs 18 lakh crore (about 13 percent of GDP) of which an estimated 60 percent are in infrastructure.”
The Economic Survey which was also released by the ministry of finance today states: “The stock of stalled projects at the end of December 2014 stood at Rs 8.8 lakh crore or 7 per cent of GDP.” The Economic Survey number is lower by Rs 9.2 lakh crore.
The question is how did the stock of stalled projects change so much in a matter of little over two months? The Mid Year Economic Analysis was released on December 19, 2014. Both these documents would have been authored by the Chief Economic Adviser Arvind Subramanian. Guess, only he can tell us why there is such a big difference in the stalled projects data between the two documents.
Nevertheless, if we were to ignore this huge difference and concentrate just on the number put out by the Economic Survey, there is some good news on the stalled projects front.
The Economic Survey defines stalling of projects as a “a term synonymous with large economic undertakings in infrastructure, manufacturing, mining, power, etc.”
The stalling rate of projects has gone up over the last few years. In 2008, the stalling rate was 4% i.e. for every Rs 100 worth of projects under implementation, Rs 4 worth of projects were stalled. For the private sector the stalling rate was 5%.
As of the end of December 2014, the overall stalling rate was 10.3%, whereas the number for the private sector stood at 16%. Hence, for every Rs 100 worth of projects under implementation, Rs 10.3 worth of projects have been stalled. For the private sector Rs 16 worth of projects out of Rs 100 worth of projects under implementation have been stalled.
Interestingly, “the data shows that manufacturing and infrastructure dominate in the private sector, and manufacturing dominates in total value of stalled projects even over infrastructure. The government’s stalled projects are predominantly in infrastructure.”
This has been the “leading reason behind the decline in gross fixed capital formation”.
As points out: “Capital formation refers to net additions of capital stock such as equipment, buildings and other intermediate goods. A nation uses capital stock in combination with labour to provide services and produce goods; an increase in this capital stock is known as capital formation…Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels.”
Hence, if economic growth has to return (as per the new GDP series it already has) the stalling rate of projects needs to fall, so that it leads higher capital formation and better incomes. The Economic Survey points out that things may have already started to improve on this front. “The good news is that the rate of stalling seems to have plateaued in the last three quarters. Moreover, the stock of stalled projects has come down to about 7 per cent of the GDP at the end of the third quarter of 2014-15 from 8.3 per cent the previous year,” the survey points out. The stalling rate has fallen from around 11% in December 2013 to 10.3% in December 2014.
While this is good news, the stalling rate still needs to come down dramatically before a substantial impact is seen on economic growth. In fact during the period 2006 to 2008, the stalling rate varied between a little over 2% and 4%. It needs to be brought down to that kind of level.
Further, the question is why have so many projects been stalled? The Economic Survey provides the answer: “It is clear that private projects are held up overwhelmingly due to market conditions and non-regulatory factors whereas the government projects are stalled due to lack of required clearances.”
The government clearances can come thick and fast, if the government wants them to. As the Survey points out: “Clearing the top 100 stalled projects will address 83 per cent of the problem of stalled projects by value.”
Nevertheless, there is not much hope for the private sector. What has not helped the private sector is the fact that it is terribly over-leveraged (i.e. it has taken on a massive amount of debt in comparison to the equity that it has). “An unambiguous fact emerging from the data is that the debt to equity for Indian non-financial corporates has been rising at a fairly alarming rate,” the Survey points out. This is something that cannot be set right overnight.
The declining stalling rate of projects offers some hope on the economic front, but the larger mess still remains.

The column originally appeared on on Mar 3, 2015

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