Mar 6

Mar 6 Indian Economic and Financial News Reports Offer More Puzzles

March 6, 2024

By Romar Correa*

I continue with my plea for irreverence in reading India’s major English language newspapers by recording headlines, usually adjacent to each other, which point in different directions.

EXPORTS TO FALL OR RISE?

India Exports May Take A $30 Billion Hit, was a headline in one paper two months ago.

Another newspaper the same day, January 9, 2024, published a story with this headline:

Agri exports likely to double to $100 bn. by 2030: Commerce Secretary

Hype notwithstanding, India cannot determine the demand for its agricultural or other exports. Exports depend on the income and preferences of foreigners.

RISING UNEMPLOYMENT OR RISING EMPLOYMENT?

According to several news reports and independent economists, unemployment continues to be a blight on the Indian economy.

SpiceJet laying off 15% staff to save Rs 100 crore per year

Poor demand from IT hiring dulls Info Edge

Tech firms’ temp worker costs dip as demand falls

Only 32 out of over 2 lakh (200,000) educated unemployed youth got jobs in 2 yrs in Gujarat

“Over 40% feel the economic situation is worse, with a similar share pessimistic about employment scenario,” according to a survey conducted by the Reserve Bank of India across 19 major cities in early 2024.

India’s job creation engines must fire for rural populace

This was stated by Michael Spence; he was awarded the Nobel Prize in Economics in 2001.

Decoding India’s economic realities- II

India’s Finance Minister has claimed that 1.4 crore (10.4 million) youth have been trained under the “Skill India Mission”. However, data shows that these skilled youth are not gainfully employed. Such excess supply of skilled workers in the economy is working as a dampener on wage and earnings growth, write Prasenjit Bose, Indranil Chowdhury, Samiran Sengupta, and Soumyadeep Biswas

In contrast to news reports and analysis by independent economists, government officials see rising employment since Narendra Modi became Prime Minister in 2017

“There is no discord over India’s growth and employment trends … Barring a covid-induced aberration, employment has been growing in line with the economy’s rise.” This is according to V Anantha Nageswaran, Chief Economic Advisor, Government of India.

Gave 1.5 times more gov jobs in 10 yrs than previous regime: Modi

EASY TO TACKLE POVERTY?

The following two news items on tackling poverty appeared on the same page:

India Much Ahead Of Target To Cut Poverty By 50% By 2030.

This was according to a research paper published by NITI, an Indian government policy agency.

First trillionaire (Elon Musk) in 10 years, but it’ll take centuries to end global poverty

“ … UK-based non-profit Oxfam notes at the same time that ending poverty – the target for which is 2030 under the UN Sustainable Development Goals – may not be possible for another 229 years.”

While not usually mentioned in the same breath for reasons to do with policy, unemployment and poverty are intimately, and obviously, linked.

A headline attributed to India’s Finance Minister Nirmala Sitharaman:

Schemes for basic needs of poor near saturation

Formal Job Additions Decline Further in November

RISING OR FALLING CONSUMPTION?

Consumers upbeat, inflation to cool: Finance Ministry

Rural consumption slumped to an 18-quarter low in Q3

WHO BENEFITS FROM HOUSING POLICIES?

Housing schemes for workers do not exist in urban India. As one story put it:

Workers’ struggle for housing in Mumbai

Former mill workers and their families residing in old dilapidated chawls held a protest at Lalbaug on Wednesday, demanding reconstruction of old chawls and allotment of alternative houses.

As this headline shows, urban housing schemes benefit the ascendant middle class and the rich.

Govt to define middle class for housing scheme beneficiaries

FARMERS RESUME PROTESTS

Farmers are back protesting in Delhi and elsewhere seeking minimum support prices for their produce.

Borders Fortified Ahead of Proposed ‘Delhi Chalo’ March By Farmers, Talks with Centre

More unions join stir, up ante over farmer’s death

While ruling Bharatiya Janata Party officials say they want to solve the farmers problems, government economists deny agrarian distress.

Rural Distress? Where? (asks) Soumya Kanti Ghosh (member of the India’s 16th Finance Commission)

Stronger Rural Economy Holds Key to Viksit Bharat: Modi

Viksit Bharat is Prime Minister Narendra Modi’s plan to transform India into a fully developed economic power by 2047, 100 years after independence from the British.

SOARING OR FALLING PROFITS?

The following news items, in the same story, made me chuckle! But seriously, profits lie in the eyes of the financial auditor.

Adani Green Energy’s Q3 Profit Soars to Rs 256 crore

Adani Energy Net Profit Falls 27%

Then a headline points out that the Adanis, who run the Adani Group, were net buyers of stock. Why were the funds not used to create more jobs through capital investments?

Adanis bought $4 billion shares in 2023 against Rs. 42.85 billion ($500 million) sold

CAPITAL INVESTMENTS OR FINANCIAL TRANSACTIONS?

The great economist John Maynard Keynes wrote “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

The level of private investment depends on expected demand for goods and services. In its absence, government capital expenditure (capex) must rise for an economy to grow. Profits are earned when goods are produced and sold above cost. When demand for goods is weak, non-financial firms act like financial firms by pursuing profits in various financial instruments. The expectation is that the profits on financial products will exceed those that may have been made through capex on producing goods. Yet, when demand for goods flag, employment is the casualty.

One headline spoke of a policy aiming to boost job creation:

Govt may opt for 15-20% hike in capex: Seeks to Sustain Public Spending To Boost Demand, Investment, Jobs in Economy

Another headline points out that overall profit growth among Indian companies is driven by financial businesses and not job creating investments:

Lenders, Finance Cos Power India Inc’s Double-digit Profit Growth

“RIL’s (Reliance Industries Limited’s) capex story takes a new turn”

“In the December quarter (Q3FY24), consolidated capex was Rs 30,102 crore, down by 22% sequentially. … As such, analysts from Morgan Stanley expect this year to be eventful for RIL as the past two years of investment move into the monetization phase. (emphasis mine). In Q3, net debt stood at R 1.19 trillion, up 1.4% sequentially…”

“While we think that RIL’s new energy plan is well thought through, we are reticent in ascribing any option value to this project as most of the announced projects would be used for captive energy consumption, said an Ambit Capital Report on 20 January. Also, the company’s flip-flops on incorporating a new energy subsidiary, merging it into standalone operations and now letting it remain independent convey its trepidation on the returns it can generate from new energy, added Ambit”

“ICICI hires bankers to handle funding boom” The firm plans 15 new hires in its investment banking division this year to beef up its mergers and acquisitions, private equity and fundraising practices, and another 15 in sales, trading and research, …”Over the next three, four years we we’ll see robust deal activity, both on the private and public side” … Others including JM Financial Ltd and Jeffries Financial Group are also planning to expand their India operations to capitalize on the boom in deals” (emphasis mine).

PAYING BACK OR RAISING DEBT?

Bonds are long-term debt issued by firms to make capital investments, green or brown. Typically, they are redeemed when the projects come on stream and returns begin to accrue. When the original investments are not undertaken, and the redemption date looms large, fresh debt is issued or funds are raised from other sources by companies that are in a position to do so. Companies that are unable to pay the debt end up in bankruptcy. Sometimes companies redeem bonds in advance of the termination date to try to charm investors into subscribing to fresh offerings.

“Adani Green Energy Limited (AGEL) on Monday announced a plan to ensure redemption of its USD 750 million bonds eight months ahead of their maturity in an effort to boost investor confidence in the company’s financial health. … Sharing the breakup, AGEL said USD 169 million has been put through the reserve accounts and internal accruals, while another USD 300 million has recently been invested by TotalEnergies through a joint venture. The remaining USD 281 million has been secured through promoter preferential allotment.”

Adani Green Plans to raise $500 million

“Part of … Adani Green is likely to use some of the proceeds from the proposed bond issue to refinance existing debt that will mature this year, the officials said” (emphasis mine).

Mistrys go Fund Shopping to Pay off Expensive Bonds