Today the economy Podcast Podcast

Why India is in the doldrums

Millions of Indians have responded to the call for a general strike launched yesterday by a dozen union centers. They protest against the economic policy of Narendra Modi, the Prime Minister whom they consider incapable of solving their problems.

India, which has experienced the most robust growth in the world for several years, is now in the doldrums. What a change in situation ! Narendra Modi came to power in 2014 touting his skills as a good manager, with an industry renewal program, with the famous Make in Inda ; it brought Indian growth to the pinnacle in 2016, to more than 9%. But from 2018 the Indian economy begins to spin, and this slowdown has worsened since his re-election. Tuesday evening the government revised the growth of the current fiscal year downwards, to only 5%, the worst figure for 11 years. For a medium-sized European country, this level would be unexpected. But for the continent country that is India, this is very insufficient: it needs at least 9 to 10% of annual growth to provide employment for the twelve million young people who arrive each year on the job market. .

What is Narendra Modi doing to restart the machine ?

This fall his government sharply reduced corporate tax from 30% to 22%, it also reduced VAT. These measures have so far had no effect on investment or on consumption. The investment which is almost at a standstill and the consumption in brutal braking phase. We do not really know what companies intend to do with this boost, they can redistribute it to their shareholders, and not necessarily devote it to their development. In fact what businesses and households need most today is real support to finance their projects. A mission that the banks no longer fulfill. Totally paralyzed by bad debts, non-reimbursed loans which lead their balance sheets, they therefore no longer dare to make credit. This is why the infrastructure recovery plan announced at the end of the year is also likely to not really work, for lack of sufficient funding to activate it.

Is the Prime Minister responsible for this congestion in the banks ?

In fact, their problem dates back to the 2008 financial crisis. Before that date, they lent generously to businesses, including some, which were not competitive, and which should have been shut down. And it never really stopped. Measures have been taken from 2016 to clean up the sector. However, this new code was not always rigorously applied and non-banking establishments continued to extend credit and accumulate bad debts. And the over-indebted companies continued to make the big back. Habits die hard. Despite the new rules and central bank controls, public banks lent again in 2018, notably to large companies close to Narendra Modi; part of this money is said to have been used to finance his electoral campaign. Until the banks and other lending institutions are cured and cured, it is difficult to envisage recovery for the Indian economy. But for the moment Narendra Modi has other priorities: his Hindu nationalist agenda, which also raises anger in the street.

IN SHORT

China will allow foreign companies to exploit its hydrocarbon resources. A decision that will apply from May 1st. Until now, foreign companies had to go through a joint venture with a Chinese company. Beijing is opening up the oil sector with the aim of increasing domestic production by 50% in the next five years. China now produces four million barrels a day and must import ten million more to meet its needs.

Asian markets opened higher this morning. The specter of the conflagration in the Middle East is spreading and the markets are therefore starting to rise again. The rebound is notable in Tokyo: + 2.31% at the close of the session.

On the same subject