Engagement of an elusive American company; bad bank is expensive

Economic development is a complex issue. Government alone cannot do this but needs the participation of everyone – business and the public

Prime Minister Narendra Modi’s visit to the United States attempted to raise hopes in an economy that needs investment, but American companies have not yet made a commitment to it. He has held meetings with five global CEOs for potential investments.

India has taken many steps to introduce reforms through an Asset Reconstruction Construction Company (ARC) or custodian bank, lower interest rates, networked businesses and a chain of roads. Companies like Qualcomm are investing in wireless modems, digital media networks, dairy transportation and defense. Now, Modi has suggested that they invest in high-tech sectors and in measures to strengthen the innovation ecosystem. General Atomics, which opened its first office in India in 2018, is making a significant contribution to deepening defense and security cooperation between India and the United States. He is working with both governments to provide India with the latest defense systems.

Investments in real estate are also always lucrative. Blackstone has so far invested $ 15 billion in real estate, private equity, real estate, education, fashion, packaging and housing finance. He would continue to do so according to the assurance of its CEO Stephen Schwarzman.

Blackstone Real Estate Fund is said to be the largest owner of commercial real estate in India. The company played a key role in launching the first Real Estate Investment Trust (REIT) in India with its partner Embassy Group in 2019 and has since launched two REITs in the country.

The Quad is a symbolic multilateral body. It provides a platform to seek cooperation from like-minded countries on issues such as respect for territorial integrity, sovereignty and the peaceful settlement of disputes. Quad leaders agreed to step up collective strategic cooperation.

There may be gains in the future. For now, there are only expectations amid a not-so-good domestic economy. The country’s non-performing assets have increased. Measures such as controlling inflation, the Insolvency and Bankruptcy Act, the Real Estate Regulation Act and the GST have not contributed to the desired growth. These have shaken the system and the confidence of the market. The rules are stricter and don’t help people. Foreign investors, although eager to invest, may also have apprehensions, which the removal of retrospective taxation can partially help resolve.

Corporate tax rates were lowered but it ignored the pivot of the individual. His taxes peaked in 2019. It has affected the basic ability of the individual to weather a crisis like the Covid-19 pandemic situation. At 42 percent plus various taxes, India has the highest tax rates. The actions of foreign countries would not be enough to restore this confidence. Even now, it would be a good idea to reduce income tax rates. This would increase the capabilities of the individual and benefit the economy as a whole, as the individual consumes more.

Falling interest rates are wreaking havoc along with tax deductions on deposits that hedge inflation against accrued interest. It affects the development process. To speed up development, interest rates must be lowered. Economic development is a complex issue. Government alone cannot do it. It requires the involvement of everyone, companies and citizens in their various spheres of activity. The country needs to think about how the whole system is reorganized.

The new ARC or the bad bank with the government’s limited guarantee will remove Rs22.14 lakh ($ 30 billion) postcode from the system. Since now it will now be under a single entity, the resolution would be easier, it is said. Bad bank is not just a virtue.

The global experience with bad banks is that they have excessive and hidden fees, bad checks, expensive debits, big bank errors, and breaking promises. This may create a new kind of market in dealing with distressed loans, but there are concerns that buyers of assets will resort to harsh and unethical methods.

In a difficult situation, new methods are inevitably tried, but it must be remembered that not all Euro-American models of the capital market should be copied because financial literacy is weak here. In addition, Indian society is much more complex and heterogeneous. A complicated system may not be a good solution. It can be practical to get rid of bad assets, but settling or reselling these for the realization of the contributions is not easy and would cause many complications because each case is different. Certainly, the nation will chart its course. Defining the new course is not easy and no one yet has a clear idea of ​​how it works.

(The writer is a seasoned journalist. The opinions expressed are personal.)

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