“A combination of India’s long-standing shortcomings (especially its inability to train and educate its people), worldwide changes in the ability of machines to replace workers in factories, and PM Modi’s resets (especially his multi-faceted crackdown on black money) is creating serious pain for the Indian economy,” wrote Saurabh Mukherjea, chief executive officer of Ambit Capital Pvt Ltd in his ‘The Sceptical CEO’ series.
“This is leading to an economic slowdown which looks likely to accelerate as the after-effects interplay with each other,” the report noted.
The slowdown is resulting in job losses, especially in the blue- collar segment, and a broad-based deterioration in the land and real estate markets. “Investors who ignore these effects and continue to pile into expensive Indian stocks are treading on water,” it said.
Rural land transactions had come to a standstill at the start of the calendar year, as the cash-reliant rural economy was hit hard by demonetisation. However, from June, this has started hurting the balance sheets of home loan providers as some loans were used to buy rural lands with the hope that they could be sold off later. These loans are not getting serviced now, it said.
Besides, the Real Estate (Regulation and Development) Act has ensured that project delivery deadlines have been extended, and some homebuyers have stopped paying equated monthly installments (EMI) of home loans to banks.
The attack on black money meant that the tax-evading informal sector, which could be providing as much as 80 per cent of the total employment, had fired a lot of blue-collared employees even as automation was fast making formal sector employees redundant, the Ambit report said.
The following charts outline some of these factors and a combination of these could lead to a sharp slide in India’s economic fortune, argues the Ambit report.
NOTE: This report is part of ‘The Sceptical CEO’ series by Saurabh Mukherjea of Ambit Capital Ltd