The article which was published in the 15th November Edition of Free Press Journal in India

Updated on : Thursday, November 14, 2019, 10:44 PM IST

Emulate TARP of US to revive economy

By R Kannan

Prime Minister Narendra Modi addresses during the Dialogue with BRICS Business Council and New Development Bank in Brasilia.

ANI Photo

Indian Economy had the potential to grow at 10% per annum few years ago, which dropped to 8% per annum before the NBFC crisis, and now after the NBFC crisis is at 7 to 7.5% per annum, due to global trade issues and lack of demand for products in India.

The Prime Minister has set an ambitious goal of $ 5 trn GDP. The government is very serious about achieving the growth very fast and many stimulus measures were introduced by the government to stimulate the economic growth. Further, sector wise revival plans are being taken up by the government and many more stimulus measures are in the offing.

The measures taken so far will certainly help to boost the economic growth. There is a need to boost the confidence level of customers, businesses and investors. The government, RBI and leading institutions in the world and research analysts have downgraded the GDP growth projection, including IMF.

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The main reason for slowdown is competitiveness of industries that was affected in a big way by disruption in the form of changing consumer behaviour, impact of digital technologies (e-commerce), increasing regulation and regulatory agencies and emergence of hyper competition in many industries. There is deflation in many of the product prices and services due to e-commerce and hyper competition. This has reduced the demand, margins and affected the competitiveness of companies, with many industries in India today having become uncompetitive. Companies are not investing in capex because of reduced margins and uncertain demand. This was also leading to incremental NPAs in the banking system.

When demonetisation and GST were introduced, the assumptions made were very bullish and in reality, their introduction did not work out as expected. The government is taking course correction actions and series of new initiatives are being introduced at regular intervals to revive the economic growth. There is a need for tax collection to go.

The NBFC crisis contributed in a big way to bring down the competitiveness of industries. This had a cascading effect on entire Financial services sector which had spill over effects in other sectors. After the 2008 crisis, US with a view to revive the economy, formulated a plan to repair the Financial services sector. They introduced a programme called Troubled Asset Relief Programme (TARP).

The programme’s objective was: Treasury to purchase illiquid, difficult-to-value assets from banks and other financial institutions. The targeted assets can be collateralised debt obligations, which were sold in a booming market until 2007, when they were hit by widespread foreclosures on the underlying loans. TARP was intended to improve the liquidity of these assets by purchasing them using secondary market mechanisms, thus allowing participating institutions to stabilise their balance sheets and avoid further losses.

TARP was a programme to purchase toxic assets and equity from financial institutions to strengthen its financial sector. The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010 and set the amount for this programme to $ 475 billion. When the programme was introduced the authorised budget for the programme was $ 700 billion. The total disbursements were estimated to be $ 426.4 billion. On December 19, 2014, the US Treasury sold its investments ending the program. TARP recovered funds totalling $ 441.7 billion from $426.4 billion invested, earning a $ 15.3 billion profit or an annualized rate of return of 0.6%. This was a very good programme, where the government recovered all the funds it committed to this programme.

In India, we have a similar situation in the Financial sector which has a spill over effect on other sectors, affecting the overall competitiveness of the economy and different sectors. The government could consider introducing a similar programme with a budget of Rs 200,000 cr to be inducted into investment in various financial instruments focussed on banks, NBFCs and other financial intermediaries. A strategy similar to TARP could be formulated, which will help to recover the investment of Rs 2,00,000 cr in four to five years and the government’s investment in the programme could be fully recovered when the value of investments rise.

The writer is Head, Corporate Performance Management, Hinduja Group.

Views are personal.

Blue Economy’s Role in Economic Development

The Article written for Littoral Communications , which appeared on their web site in November 2019

Blue Economy’s Role in Economic Development

The blue economy is the, sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem. It is a Concept which encourages better management  of our ocean and blue resources. Blue economy also includes  benefits , such as carbon storage, coastal protection, cultural values and biodiversity.

The concept of Blue Economy covers, Port development, Port based Industrial Development, City development, Cluster development, Fisheries, Education and Research, Shipping, Oil and Gas Extraction, Aquaculture, Coastal Development, Tourism, Marine bio tech, Renewable energy, waste disposal, environment protection and maritime security, Ship building , Ship breaking and Ship repairing.

Blue Economy plays a major role in economic development of a country. When we discuss the development of blue Economy , it becomes very relevant in the Indian Context. Prime Minister set a vision of achieving $ 5 trillion  GDP within a short period of time. Blue Economy can contribute to $ 1 trillion of GDP . We can have Blue Economy Vision of $ 1 tillion. Lot of initiatives are being taken to develop the blue Economy . The focus is on using the water resources for Transportation, Port Based Economy Development, Port based industrial development. The initiatives like Sagar Mala is part of the overall development of blue Economy.

The logistics cost in India is more than 14% of the GDP and it is one of the highest in the world. The government has set an objective to bring this down to less than 10%. With this in view, the inland waterways will be developed across the country for the transportation and 20,000 KMs are likely to be developed and already few National waterways were opened for transportation of cargo. The focus of Inland waterways will be transport of bulk items like Steel, Coal, cement, Iron ore, Agricultural commodities.

The Sagarmala Programme covers  investment of ₹8.5 trillion to set up new mega ports, modernizing India's existing ports, developing of 14 Coastal Economic Zones (CEZs) and Coastal Employment Units, enhancing port connectivity via road, rail, multi-modal logistics parks, pipelines & waterways and promoting coastal community development, with the aim of boosting merchandise exports by US$110 billion and generating around 10,000,000 direct and indirect jobs.

Sagarmala aims to modernize India's Ports so that port-led development can be augmented and coastlines can be developed to contribute to India's growth. It also aims at "transforming the existing Ports into modern world-class Ports and integrate the development of the Ports, the Industrial clusters and hinterland and efficient evacuation systems through road, rail, inland and coastal waterways resulting in Ports becoming the drivers of economic activity in coastal areas.

To increase the pace of growth through Blue Economy, plans could be drawn up to create Ports with city and Industrial development similar to Singapore and four ports in India could be identified to replicate the  model and success of Singapore.

One of the challenges for achieving this growth will be arranging finance for such large projects. The options for raising the required financial resources could include,  lease of operating Port assets to generate revenue for new projects, issue of Blue Bonds ( already issued by Seychelles ), attracting FDI from leading players in Blue Economy in the world,  issuing special bonds focussed on port based projects apart from the traditional sources of funding. 

Considering the new found thrust on this concept, we will have opportunities arising in the developing the areas of Automobiles, Engines, Inland water Transportation Vessels, Renewable energy, Security, Infrastructure Development , River based projects, Water based projects, Lubricants and Marine oil, Banking and Financial Services.

We should use the long coast line and rivers in India to achieve the desired target of $ 1 trillion through and the government initiatives in place will go a long way in achieving the target and all the stake holders should be geared to achieve this target. The government can create a programme to propagate the vision of $ 1 trillion to all the stake holders which will help to achieve the target very fast.