The last article was all about trying to be short and sweet, but unfortunately cant say the same about what I have written below.
As the title suggests this is more about balance sheet. And its about balance sheets of various kinds.I know most people relate balance sheets to accounts, but here its more to do with the generic sense of the term "balance sheet".
Hopefully by the end of it, what I mean would be clear.
So lets start with the first one.
Energy Balance Sheet -
India has a lot of coal (though it is questioned by a few), lesser natural gas and even lesser crude oil reserves.That we import 80% of our crude oil requirements is thus not a surprise. We import, maybe, half of our natural gas requirements.
But very soon we will be importing big quantities of coal as well.This is a combined result of corruption, bureaucratic lethargy and some environment conservation efforts.
Thus the energy balance sheet has too many annual perennial liabilities and little to speak of in terms of assets. Dependence on external elements for critical energy requirements puts us in a very uncomfortable position to say the least.
Water Balance Sheet -
India has been blessed with rivers of the size of Ganga, Yamuna, Godavari, Cauvery etc. But blatant abuse of river waters has made quite a bit of the water unusable for even mundane activities like washing clothes, leave alone drinking it.Unabated illegal sand mining on river banks or dumping of untreated chemical waste in the river has left such a precious natural resource in a precarious state.
Faulty policies have led to over utilization of water pumps and fast depletion of underground aquifers. The situation is particularly severe in North India which happens to be the granary of the country.
That water availability is crucial for everything from agriculture to industries to households is obvious.Volatile monsoons can cause problems for a few months, but a structural deficit or supply problem in this domain is an absolute killer. Its a balance sheet with diminishing assets.
External Balance Sheet -
When the financial crisis struck in September 2008, India had foreign exchange reserves of more than 300 bn USD and external debt of around 220 bn USD. Populist govt policies and consumption driven growth momentum has turned the situation upside down, with external debt hovering around 350 bn USD and foreign exchange reserves in the range of 290 bn USD.
The Water and Energy problems discussed above along with the land acquisition problems have made manufacturing expansion difficult and are likely to add to the External Balance Sheet problem through the Current Account Deficits.
Crude oil price and gold imports matter, but what can be done on the domestic front to reduce their impact is not being done, as of now.
Corporate Balance Sheet -
While corporates in the US and Europe are deleveraging are sitting on record amounts of cash, Indian corporate balance sheet is not in that great a shape.
Most major industrial groups in the country have hugely leveraged balance sheets. In fact a recent report Credit Suisse estimated that the top 10 corporate borrowers account for 13% of the total outstanding loans from Indian banks. That is the worst concentration ratio in Asia. These groups have gone ahead with overseas acquisitions and most of them have not resulted in great results.
All this is likely to cap the enthusiasm and capacity of these groups to expand, besides the projects they had decided 4-5 years back and are in execution stage.The energy and water problems discussed above also add to the problems. That raises a serious question mark on the number of job opportunities that will be up for grabs in the forthcoming decade. IT/ITES cannot absorb all.
Given that the average age of the Indian population is in 20s and that millions of them are going to join the workforce in the coming years, it does NOT bode well.
Government Balance Sheet -
In response to the 2008 crisis, Govt of India embarked on the spending spree with huge doses of populism. But the dose was never withdrawn even after we were well past the crisis. This turned the long process of fiscal consolidation on its head.
Now when the economy is slowing down dramatically, the government, running a huge deficit, can hardly help even as inflation refuses to come down.Its the stuff of nightmares.
I know I have made it look very bleak, but I am trying to write it as I see it and have tried not to exaggerate one bit. It is not as if the situation is not retrievable. But just that it requires a few difficult decisions, the results of which will be seen in the medium to long term and with a little luck we can recover the lost momentum to some extent. And this where the final balance sheet comes.
Political Balance Sheet -
This is one balance sheet, where we could have done with a skewed arrangement in favor of one particular group. But the "balanced" nature of this particular balance sheet is ensuring that difficult decisions are not taken for fear of losing control, while the economy and people suffer.
And therein lies the crux of Indian problems...
(DISCLAIMER : The probability of my opinions going horribly wrong is closer to 1 than to zero!!)
