Is this Economic Tsunami a Reality?

Shantanu Basu analysis makes a terrifying read An Economic Tsunami is going to swallow us and represents the views of the authors. Though the author has condemned the activities of the Narendra Modi govt; we feel that we as a nation is doing well despite the pandemic and him as a leader is doing best to steer the nation away in the crisis. So, the article is to be read for the worst scenario and is not to cast aspersion on the ongoing govt activities during this corona pandemic and ongoing Chinese aggression countering at the Army level.

"That the media, lock stock & barrel, has been silenced by Modi Sarkar is evident from the blackout on the ongoing Railway employees stir. Gone are the days when employees protested privatization. Of late, they have realized that even their existing jobs may be axed, en masse. GOI's
financial bankruptcy is unprecedented, even by 1991 standards.

At the rate at which public finances are heading into the disaster zone, Modi may well have to fire at least 50% of his Council of Ministers aside from retrenching at least 40% of serving GOI employees and cut back severely on Govt expenses including the Central Vista project and luxuries that his babus & mantris enjoy at public expense. States too would have to follow suit. Most states are down to less than 25% of their monthly revenue earnings. These steps will lead large sections of hitherto sanghi Sarkari babus to hit the streets; an about-turn in just 15 months when they voted for Superman Modi.

Not just that. State-owned banks may have to follow the same line. Once the moratorium on recognition of NPAs is lifted on Sep 30, NPAs will jump by an unknown figure, estimated at anywhere between Rs. 8-10 lakh crore at least. With GOI borrowing going through the roof at relatively lower interest, banks would be hard put to meet their working expenses, incl salaries & pensions, since they would have very little to loan to retail clients at higher rates of interest.

GOI may be left with no option but start withdrawing rapidly from its foreign exchange reserves and pledge its gold reserves at this rate of retrogression. That will leave the RBI with very little or no cushion to meet its own working expenses and support INR in the international market, primarily to ward off adversity in oil imports. That may well cause RBI too to retrench non-essential personnel from its huge domestic empire.

Likewise, several public utilities, mostly in the power sector, may resort to similar retrenchment with demand not rising and people refusing to pay bills for the pandemic period. Low demand has already caused manufacturing industry to operate at barely 60% of installed capacity, causing a very big decline in demand for power that hits discoms very hard. If they cannot generate revenues, they will not be able to pay Coal India for feed stock, salaries and pensions, etc. That is why, I understand, Coal India has already starting borrowing from the market, that is unprecedented. For Coal India too has to pay for O&M of its equipment, salaries and pensions. Many CPSUs have already started borrowing to meet their working expenses. This is aside from borrowing by GOI and states.

Many of you have not realized the unparalleled magnitude of the peril that faces us all. For instance, 98% of GOI's borrowing is sourced from small savings like post offices, PPF, GPF, pension funds etc., all of which are to be repaid after a fixed tenure. Likewise, a large part of GOI/ State/ CPSU borrowing comes out of your fixed/ time deposits & saving bank accounts. Please remember that Modi sarkar has vacuumed all cash surpluses held in various pockets like RBI, ONGCs, earmarked funds like Sarva Shisksha Abhiyaan, Green Energy Cess Fund, etc. Therefore GOI has no fallback position either.

It is not just a financial emergency but an unparalleled economic one too with Modi Sarkar having absolutely no idea of how to tackle this problem. Instead, they are content with using a dead film star to win the Bihar elections and trying to topple Maharashtra govt. Printing new currency to drive away cash shortages on the giant scale (that the situation warrants) will invariably add substantially to inflation and cause hunger, starvation & death, aside from unmanageable law & order problems. Remember the Weimar Republic where a wheelbarrow of currency would buy a single matchbox? 7I do not seek to portray an alarmist view for political reasons alone. I argue as a public policy analyst who has seen the ugly innards of GOI for three decades and realize it far more than most of you that have worked in the private sector."

Let wisdom & expediency dawn

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