about 2 years ago
No Image


The Narasimhan Committee report, way back in 1992 had talked about consolidation of the PSU banks and what the Govt did today was finally put that long talked about plan into action.

And every Friday evening, looks like the FM has taken it upon herself to make some big bang announcements. Today, the mega merger could not have been timed any better – it removed all attention completely from the slowdown; the debate otherwise would have been on the GDP but with this merger announcement coming in just before the GDP numbers, attention is completely deflected. We now look at Q1FY20 slowdown as that which was anyway expected and the Govt is taking steps to finally put the economy back on track.

As per the mega merger plan:

  • Oriental Bank of Commerce and United Bank will be merged with Punjab National Bank
  • Syndicate Bank will be merged with Canara Bank
  • Andhra Bank and Corporation Bank will be merged with Bank of India
  • Indian Bank will be merged with Allahabad Bank
  • Bank of India, Central Bank of India, UCO Bank, Bank of Maharashtra, and Punjab and Sindh Bank to remain as it is.

And just as we were still digesting this BIG bang news, the GDP for Q1FY20 came in and much lower than what most analysts had put out. We all knew things were slowing down and this number of today further legitimized it.

Internals of the GDP for Q1FY20 (QoQ)

  • GDP – 5% v/s 5.8%
  • GVA – 4.9% v/s 5.7%
  • Farm –  2% v/s (-)0.1%
  • Industries 2.74% v/s 4.2%
  • Manufacturing 0.6% v/s 3.1%
  • Mining and quarrying – 2.7% v/s 4.2%
  • Electricity – 8.6% v/s 4.3%
  • Construction – 5.7% v/s 7.1%
  • Trade, hotels and transportation -  7.1% v/s 6%
  • Finance & real estate – 5.9% v/s 9.5%
  • Public Admin – 8.5% v/s 10.7%

Well, there have been many things announced over the last 10 days but there is nothing which has been directed straight at pulling up the sagging growth. There has been no BIG bang money spending measures, nothing fiscal. Yes, today’s announcement of merger and capitalization will strengthen the banks but it will take time; we will see the impact of this only in FY21, depending on the timeline.

The slowdown we see now at 5% means that the economy needs more than all that which the Govt has given; a major fiscal push is required and it is more than just a cyclical issue; there are more structural issues which need to be addressed. Sentiments are low and that too, to a large extent is keeping demand at bay. The Govt needs to thus announce measures which will push up investor confidence and more than non-fiscal, a good fiscal push is required. Taking care of the FIIs and the super-rich alone will not help; the Govt needs to get down to real reforms, the way we saw it happening in 1991. Collapse of the private sector consumption is a very big worry and that is what the Govt needs to concentrate on.

Manufacturing growth at a meager 0.6% should really get the Govt going. The grim picture we see today is more on account of our own doing and cannot be blamed on the global factors alone. Hope the Govt takes this very seriously and gets cracking on pushing reforms which impacts real people and not the mere 1% of the population.

Popular Comments