Citizens' Issues
A time bomb is ticking away in India’s Northern Belt: Report
A combination of skewed gender ratio, economic destitution and a large population of unemployed youth has resulted in social unrest and, consequently, explicit economic losses in the northern belt, says a research report from Ambit Capital 
 
India’s rapid economic progress masks its abysmal progress on social indicators. Worryingly, this imbalance between rapid economic progress and stagnant-cum-awful social metrics is particularly glaring in India’s Northern Belt (INB), the region spanning Rajasthan in the west to Bihar in the east, warns a report.
 
"Despite the fact that INB is the youngest region in India, the region runs the risk of exploding as millions of barely literate men face a lifetime without jobs and without women. These risks could come to the fore particularly in the run-up to second half of FY2017 as Uttar Pradesh and Punjab are scheduled for state elections in first half of 2017," says Ambit Capital in a research note.
 
Economic theory suggests that when the proportion of young people in a region increases, a significant boost to economic growth should materialise. The post-World War II years saw the West in general and the US in specific benefit from this dynamic as the baby boomers delivered record productivity.
 
However, the report says such demographic dividend is no likely to accrue in India anytime soon. "We highlight that even as India’s demographic profile today is similar to that of the US in 1960 (see exhibit A & B on the right hand margin), contrary to popular belief - a demographic dividend is very unlikely to accrue to India anytime soon. This is mainly because a large share of India’s youth today lacks education as well as jobs to deliver this productivity. To add to the imbalance, India’s gender ratio is skewed significantly in favour of men," the report added.
 
 
India as a whole is significantly better off on economic as well as social indicators than INB, however, a demographic bomb is ticking away in the northern belt, Ambit Capital says.
 
It said, "Whilst these problems are well known, the noughties have seen the adverse social conditions are acting as a binding constraint to economic growth and  the political situation becoming more fraught because politicians and riots are now in a symbiotic relationship. With three States of this region, Uttar Pradesh, Uttarakhand and Punjab scheduled for elections in first half of 2017 (see exhibit C in the right hand margin) we highlight that violence and social unrest related risks could come to the fore particularly in the run up to second half of FY2017."
 
"In contrast, the south is almost like a middle-income country with superior performance and improving on a range of socio-economic parameters. Superior literacy levels means that even the southern states’ labour markets are in better shape as compared to INB, which suffers from an over-supply of under-skilled labour," the report added.
 
Talking about India's progress on social indicators front, Ambit Capital says, whilst only six countries today have economies that are larger than that of India’s, our country is at the bottom of the league tables on social indicators with only 58 countries having an human development index (HDI) rank worse than that of India’s (see exhibit below). Emerging market peers like Russia, Turkey and Mexico have significantly superior HDI scores compared with India, it added.
 
 
Ambit Capital says this imbalance between rapid economic progress and stagnant-cum-awful social metrics has arisen mainly owing to the drag created by the Northern Belt -INB, which comprises the region spanning Rajasthan in the west to Bihar in the east. 
 
"Even as INB is the youngest region in India demographically speaking, the State Governments in the region have almost completely failed in providing healthcare, education and jobs to this region, which accounts for 45% of India’s population," the research note added.
 
 
According to the research report from Ambit Capital, India excluding INB is better off than the northern belt on both economic and social indicators. 
 
It says...
  1. An average person in INB earns a per capita income of US$1,183 (which is less than that earned by an average citizen of Pakistan or Bangladesh). This average person survived the infant mortality rate of 45 and is now expected to live for 67 years, which is less than the life expectancy of an average citizen of Bangladesh or Nepal.
  2. Of every 100 people in INB, 36 are in the age group of 15-35 years and hence comprise the youth.
  3. Of these 36 young persons, only 66% or 24 number of persons are literate which is defined in India to mean any person who can read or write his/her name.
  4. Of these 36 young persons, only 46% or 17 persons have jobs.
  5. Of these 36 young persons, only 47% or 17 are women.
 
On the contrary,
  1. An average person in South India earns a per capita income of US$2,014. This average person survived a much lower infant mortality rate of 28 and is now expected to live for 69 years.
  2. Of every 100 people in South, 34 are in the age group of 15-35 years and hence comprise the youth.
  3. Of these 34 young persons, only 72% or 25 numbers of persons are literate which is defined in India to mean any person who can read or write his/her name.
  4. Of these 34 young persons, only 57% or 19 numbers of persons have jobs.
  5. Of these 34 young persons, only 50% or 17 are women.
 
"Whilst the above stated problems are well known," Ambit Capital says, "the noughties have seen the adverse social conditions acting as a binding constraint to economic growth and the political situation becoming more fraught because politicians and riots are now in a symbiotic relationship. This turn has meant an increasing incidence of social unrest and violence in INB, which has often threatened the smooth functioning of the regional economies (see exhibit below).
 
 
From a geographic perspective, in a globalised age where sweatshop type unskilled labour is no longer required, North India's destitute and poorly educated people would become increasingly irrelevant. Given that India’s competitive advantage in the global export market lies in producing ‘light industrial products’ that are capital-light but knowledge-intensive, the South would be able to produce the same effectively, making the North increasingly irrelevant to the global exports market. The North would not be able to produce these efficiently owing to the under-skilled nature of labour and rising risks of conflicts.
 
The report says, "As INB continues to grapple with its socio-economic problems, resulting in low economic growth and high social unrest, the companies which have either operations located in INB or depend on demand from the region are likely to see limited growth opportunities in the future. This is because the underdeveloped human capital due lack of proper education and training and poor health facilities, will become a binding constraint on growth. This will result in fewer job opportunities for people in INB and, hence, reduce demand in the region.
 
"On the other hand, South India, with its improved social environment and better human capital, will be capable of increasing demand and, hence, economic growth. Improved social indicators and a well-managed political system will result in fewer social tensions, providing a conducive environment for growth," the report concluded.

User

COMMENTS

shadi katyal

1 year ago

The Englishj Law was for the Local states and ha nothing to do with common man.The surname was always of the family one married. Itios now that even gilrs are being given equal share in protperty as there was not enough sub division.Now some ladies have started using their family name as in the past.
It is easy to say,not to have chioldren but ask any Indian family and you will have your ears full. The need for a child within a year is so bad that even people start asking if the bride is fertile. The customs in India are not what your might think off or wish to be.
Hindfus even need son to light his pier and do all the rights for his parents.
Even the poorest have the children and any talk of no child will not solve probkes as you will have no future labour force. Look at China and now even they are feeling the pain of one child.
Education is right of every child and even the poorest nations p[rovide and how dow you expewct nation to flourish without any future educated population.
Our people are no less talented than any other nation but it is the social and religious pressure which has kept backward and we like to blame our own draw backs on others.
We are either allegic to hard work and quality ornot bright enough to see in this age of internet where world is goiong but our customs and religous customs keeps us back. We are immersed in customs which are more or less a hinderance

bharati

1 year ago

Anyone heard of birth control? India's only internal problem is too many people. Anyone who is prosperous today has achieved it by NOT having kids and via cheap,govt. subsidized education. Crime arises when demand is more than resources: so work at population reduction

Stop breeding unless you really want a child and are willing and able to care for it for the next twenty years. Want prosperity? Stop breeding and struggling for the child's medicals, food, accommodation, schooling, etc.

Jobs, worldwide, are disappearing. The world currently does NOT need any more kids. If this changes, then we can change.

NO govt can impose birth control: citizens must manage it. The gender ratio is largely irrelevant because not every man wants marriage, many (10+%?) are gay and many actively dislike women. The same is true for women.

Where was all this peace and prosperity when more women were around?

Pushing families to have girls they do not want is callous, especially in a highly overpopulated world. No one should force anyone to have girls just because of some gender ratio somewhere unless you are willing to take care of the unwanted girls.

The southern states are already on ZPG, bringing in more stability and prosperity

REPLY

shadi katyal

In Reply to bharati 1 year ago

MR. bHARATI,
You have failed to understand the psyche of Indian family and thus need for children to continue the family name. Being an agricultrual land and even now 70% living on land need more hands to work on the farm and very few can afford mechnical equipment.This tradition will die down in abother few decades but what we miss is the industry and more jobs.
What we need is technical schools to have capable labour force.We need to teach children that getting your hand dirty is not a sin or below dignity. We need ethics to work and be proud of it.
The free education is an essential so we can have some displine. Kiij howq even the Unicersities are being thretened with Sedaation charges.
The fact is that Religionb cannot solve our problemns but we are puashig Hinduvta to the end.
India was at par with China in 1990 but we never saw the elephant in our room and still blind of its exitance .
While the world is moving ahead with technology we are still talkimg of the past. India can develope when we start thinking of quality and hard work as well face the TRUTH
As for women, we still have Draupdi syndrom

bharati

In Reply to shadi katyal 1 year ago

AFAIK British laws insisted on male heirs: Indians could no longer retain property without a son: otherwise the govt could take their property.

'The family name' i.e. surnames being passed on to sons (and only to sons) is a fairly recent phenomenon and again due to colonial laws. Women HAD to take husbands' names. None of this is legal now.

It is practical not to have kids especially if there is little chance of proper schooling or work. Most have prospered due to limiting families: our people are smart. If good reasons are given, they understand and Hindus especially have shown repeatedly they are very open to social change.

shadi katyal

1 year ago

It is unfortunate that our nation which can develope faster is now busy with religious issues. We cannot see the elephant in the room.
Modi offered Bihar Crores of rupees for development but where are those funds or was that a bribe to buy va nation cannot be otes.
We were shown greener pastures with RSS running under the flag of BJP but wjere are all the funds Modi declared on his return from his triops.
Where is any inbdustrial or economic development except intolerance and hate.A nation cannot be developed by goons runni ghte Law ans Order and beimg vegilante.
Recent JNU case and assults by upholder of Law in the court itself has left many investors aghast. The Vidofone income tax case has put fears in invetors of such arbitrary impostion.
We are npt moving ahead but too busy with more destructive agenda.
Religious issues like Hinduvta agnea has to be left aside if we wish to move ahead

REPLY

bharati

In Reply to shadi katyal 1 year ago

Modi, Congress, Owaisi or whoever may come and go. India's prosperity will increase if India stops breeding. In a democracy, citizens are responsible for whatever happens, especially immediately round them.

RBI’s move to restructure MSME loans amounts to treating obesity and anorexia with the same medicine
The units having sanctioned limits of Rs10 lakh and above, but up to Rs25crore areall bracketed for treatment with a single brush and this is unfortunate
 
In the din and bustle of mounting non-performing assets (NPAs) that attracted world-wide attention, the Reserve Bank of India (RBI) in its 17 March 2016 circular took up the unfinished agenda of KC Chakrabarty Committee (2007) Report to remedy incipient sickness of the micro, small and medium enterprises (MSME) sector. 
 
The units having sanctioned limits of Rs10 lakh and above, but up to Rs25crore are all bracketed for treatment with a single brush and this is unfortunate.
 
The instructions also presumed that all is well with the banks and the MSMEs alone are responsible for their financial failures. Banks, with very few exceptions, stopped cash flow based or order-based lending for working capital of the MSMEs. 
 
The Nayak Committee norm of 20% of turnover as minimum working capital limit has been taken to be the maximum and not the minimum in the case of several micro and small enterprises.
 
Some of the reasons for the units falling into SMA-0 category are, inadequate or delayed bank finance, repayment obligations on term loans, which are incommensurate with the cash flows, inadequate startup period for repayment of term loans. Banks would be averse to review their own inadequacies.
 
The other uncovered area is the adverse effects of (a) long drawn agitations in the States leading to failure of infrastructure like power and water; (b) units affected by natural calamities like the floods, cyclones, and earthquakes that result in partial or full damage to the assets financed. Remedies are not possible within 90 days.
 
MSME units broadly fall into – stand-alone enterprises; ancillary enterprises and cluster based enterprises. While those in the former category could be having wider markets, ancillary enterprises and even some cluster based enterprises operate in narrow markets. If the anchor industries failed, the dependent MSEs would be a pack of cards in spite of themselves.
 
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme extends guarantee cover to units availing limits up to Rs1 crore within certain threshold if the primary lender extends loans sans collateral. It is mandatory to lend up to Rs10 lakh without seeking collateral security. 
 
Several banks take collateral for term loans and grant collateral free advances up to Rs10 lakh working capital. Once installment or interest becomes overdue beyond 90 days, both working capital and the term loan, the unit becomes NPA and the collateral security gets invoked for realization of all the loans. There is no mention of the treatment of CGTMSE covered loans in the latest circular.
 
Where the MSE with Rs10 lakh limit are vendors to the large scale, corporate, and medium enterprises also financed by the same bank or the consortium of banks, the failure of these could lead to the failure of the MSMEs within the naked eye of the banks. This is because such MSEs fail to get their bills paid in due time (from large clients) calling for repeated extension of period for repayment. In most such cases, neither the product nor the processes can take the blame. Madhav Lal Committee (GoI, 2013) suggested treating such delayed payment for accepted goods as income in the hands of the company and taxed. This suggestion is worth pursuing.
 
It is time that the banks incorporate in their loan agreements a clause to recover the MSE dues for accepted goods by debit to the purchaser’s account if the bills remain unpaid beyond the tenor of the bill. In case there are legalities coming in the way, the banks should negotiate for quick resolution of such dues as mediators between the MSE vendors and the large enterprises.
 
It is obvious that the SMA-0 required 30 days under the extant instructions in which case the NPA for MSMEs need to be redefined to those falling due beyond 120 days and not 90 days. Basel III dispensations provide enough leverage to the regulator to be malleable in the case of SMEs that the RBI can take advantage. Prudential norms and asset classification needs a review.
 
Further the fees to be paid for the Techno Economic Viability (TEV) study has also been left for the bank concerned to decide. An ailing enterprise may find it difficult to pay for it unless it comes as an interest-free loan repayable as part of the restructured loan installments.
 
Treatment of dues to the government by way of taxes, cess and duties require coordination with the state governments. This is obviously left for the Board appointed committee to decide. 
 
The Boards are expected to appoint such committee by June 2016 and the Indian Banks’ Association (IBA) to roll out the needed application forms in the next few weeks. Hopefully, the banks would see the intent of the RBI in expeditious processes in sanitizing the sector.
 
The most admirable part of the current instruction is the review mechanism highlighted in the annexure that provides opportunity for the aggrieved enterprise to revisit the recovery proceedings for any required correction.
 
About 14% of the total manufacturing sector credit is reported for the MSEs while 5.9% of the MSE credit has been declared as NPA. Banks mostly cover all the government sponsored accounts, most of which are in the services sector and transport sector under the CGTMSE. There is no information as to how many and how much of the manufacturing MSEs are covered under the CGTMSE and the amount covered under collateral securities. Banks proceeding against the collateral securities under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act seek 10% deposit from the bidders and this acts as a major deterrent for the bidders. The result is that most such bids exhaust all the three chances without bids. The whole process takes three months. The Banks thereafter start exploring other means of recovery or rehabilitation. There are quite a few cases where the banks scaled down the debt or agreed to rehabilitate the unit that was considered unviable three months ago. The new instructions would provide better opportunity for the units confident of revival to press their case without having to wait for the aforementioned rigmarole. 
 
In the light of these instructions the role and relevance of the State Level Inter-Institutional Committee (SLIIC) needs review by the RBI. The disease is not cured by not naming the medicine but by administering it in right time. Treating obesity and anorexia with the same medicine.
 
(Dr Yerram Raju Behara or Dr B Yerram Raju  is a former senior executive of SBI and an economist and risk management specialist. He is also MSME Lead Consultant for the Government of Telangana. The views expressed in the article are his personal.)

User

RBI’s MSME restructuring drive is a dicey move: Report
While the RBI's AQR move was a master stroke to clean bank books and stop the evergreening of stressed loans, the move to restructure MSME loans can have an opposite effect, warns Religare Capital in a report
 
The Reserve Bank of India (RBI) has allowed banks to restructure micro, small and medium enterprises (MSME) loans up to Rs25 crore by devising a corrective action plan (CAP) and opting for the rectification or restructuring and recovery of such stressed accounts. However, this move can have an opposite effect, says a research report from Religare Capital Markets Ltd.
 
"While with this move, the RBI is looking at faster resolution of stress in MSME accounts, we think the impact would be starkly opposite to the central bank’s asset quality review (AQR) drive which aimed at cleaning up bank books. Banks may also witness a surge in MSME restructuring, making it difficult to keep a tab on such loans," the report says.
 
The RBI has issued guidelines for restructuring of MSME accounts with outstanding debt up to Rs25 crore. Banks have been directed to form a committee and devise a corrective action plan (CAP) for all stressed MSME loans, of which accounts with loan limits up to Rs 1mn have to be dealt with at the branch level. Moreover, a stressed MSME with debt in excess of Rs10 lakh can directly apply for a CAP. The committee, within 30 days of convening its first meeting, has to zero in on any one of the following three options to be adopted under CAP:
 
(a) Rectification (fresh loan disbursement to stressed MSME accounts): Banks can grant MSME borrowers additional funding for six months in order to revive the account, while ensuring there is no net present value (NPV) hit on their books. While such accounts would retain their existing classification, fraud cases would fall under the restructured category if rectification along with the six-month funding option is availed more than once during a year. Only in exceptional cases, banks would be allowed to fund the working capital requirement of MSMEs, while in the normal course, an account would directly slip into NPA in case of diversion of funds.
 
(b) Restructuring of existing loans: This applies to standard accounts, special mention accounts or sub-standard accounts with one or more lenders (but not majority of lenders). The moratorium for restructuring would be six months and the restructuring package should outline the milestones to be achieved after this period. No timeline however has been prescribed for attending full normalcy with respect to MSME loans. Also, restructuring can be done only if the borrower is not a wilful defaulter and if majority of creditors approve the same. In addition, MSME promoters would have to extend personal guarantees for restructuring.
 
(c) Recovery: Banks can resort to the recovery of loans if either rectification or restructuring is not found viable, and initiate the process at the earliest.
 
 
Religare Capital says while the RBI's AQR move was a masterstroke to clean bank books and stop the evergreening of stressed loans, the move to restructure MSME loans can have an opposite effect.  It feels, the volume of loans under MSME restructuring will be large compared with corporate debt restructuring (CDR), making it difficult to monitor them. 
 
"We think even standard accounts will opt for this scheme (as done by many corporates earlier) since it eases the interest and debt repayment burden in the near term. Note that lower provisions on stressed loans don’t go down too well with investors. Loans to MSME sector form 12-15% of total system loans. It is difficult to ascertain the exact impact of the RBI’s move, as MSME exposure already classified as NPAs in the books of banks is not known. However, we believe PSBs are likely to offer this scheme to a large number of MSMEs," it concluded.

User

COMMENTS

B. Yerram Raju

1 year ago

First the MSME loan portfolio will not be as large as estimated by the Religare Capital. Second, standard assets do not qualify for restructuring as stressed assets under incipient sickness alone qualify for the three "R' effort.

As already mentioned in my article on the subject, a couple of tiers between Rs.10lakhs and Rs.2500lakhs are necessary to give proper effect to the guidelines.

It is a welcome move that the borrowers can now seek the review under this arrangement. The wearer knows where the shoe pinches.

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)