The Real Reasons of Economic Growth, What is our view going forward?

Monday, May 29, 17

The Real Reasons of Economic Growth, What is our view going forward?

Greetings from Hitesh! Govt is celebrating higher rate of GDP around 7% compared to around 5.5% which was expected by various experts due to DEMONETISATION. I have been waiting that some great economist would surely write about this. But, nobody has even bothered to talk or go behind the scene. Today I am going to share an understanding of a COMMON MAN on economic growth. I consider myself a common man, as I do not have a PHD in ECONOMICS. So, read this post keeping in mind my weakness. I reserve the right to be proved 100% wrong.

What has been the MAJOR DRIVER of GROWTH?

It was established fact before demonetization that close to 50% of the economy is cash economy. If I agree on this simple assumption than I can take you to the next level.

RBI had issued close to Rs.15 lakhs crores of currency in the market. If we assume above assumptions to be the true then we have 7.5 lakh crores of black economy.

Since all the money was deposited to the bank ( RBI is still counting the cash), the people would have paid conversion charges. The conversion charge was around 10% to 40% depending on the time and way of conversion as per various media reports. In fact, leading private sector bank helped some selective people in DELHI. If we take the middle figure of 20% as conversion charge - the persons would have paid close to Rs.1.5 lakh crores for converting Rs.7.5 lakh crores.

The people who made this money had made this 100% FREE OF COST. Rs.1.5 lakh crores are 10% of the total currencies in the market.

Now, what do you think these guys would have done? Of course, they would have spent them like there is no tomorrow. This would have given the big push to the economy.

Second factor is buying in ADVANCE:-

During DEMONETISAION – some medical and food items were allowed to be sold in old currencies for some period of time. The people would have bought for 3-6 months or for a year also. That had added to the GDP in the period ended 31^st Dec.,2016.

What has been the LIQUIDITY Position of the BUSIENSS OWERNERS?

Since 2014, the liquidity was tight and small and medium business guys were expecting some relief from the new govt. But they have made their life worse. The CREDIT cycle in many of the businesses have expanded from 30 days to 90 days and 90 days to 180 days and 180 days to 1 year. They are in soup. Many are closing the shops.

How GST is going to affect?

Most guys are not TECH SAVVY and they are finding it difficult to follow GST procedures. The TAX rates are also high on many of the items and it will decrease the demand going forward.

I have heard many businessmen are thinking to close the business as they find it difficult to do the business under current set up. It would be funny to note that many businessmen are making 5-10% on their items and they are required to pay GST 15-28%.

Another FUNNY aspect is if A sell to B, he has to deposit the GST now. B will pay him his bills after 3 months or 6 months or as per the terms. In many cases B may DEFAULT also. So, the A lost money in MATERIALS supplied to B + paid the GST NOW!! Double loss. How long A will continue to do this kind of business?

International Scenario:-

TRUMP is forcing Indian companies to employ US guys and Infosys was the first to announce that it will employ US guys.

Indian IT companies are retrenching their current employees as their business is getting affected and we can’t expect some major job creation from this sector in foreseeable future.

Govt is killing the largest employer in India?

Unorganized sector is the largest employer in India and not our BSE/NSE listed companies. With the current measures – unorganized sector is the hardest hit and the job creation will stop in this sector also. Already it is very slow at this moment.

In short JOB creation will be slow in organized and unorganized sector.

RAIN:-

IMD is expecting normal rain. I am expiring above normal rain or flood like situations in many parts. That will also affect the already affected economy adversely.

Corporates are BLEEING:-

Look at the results of the MARCH quarter and the forward looking statement of most of the companies. Both are MUTED for the current and future growth.

What it means for ECONOMY?

Experts are targeting a higher rate of growth of economy in MARCH 2018. I do not agree with them looking at the ground realities mentioned above.

Only time can prove who is right or wrong.

What is my final call?

On Thursday, July 7, 16 – we wrote our post with title - Why WORLD is witnessing so many negative EVENTS in recent times? How do we see coming one year?

In the same we had written one simple line :-

Now combine RAHU / PLUTO and GURU and you have a DECEPTION / ILLUSION of CHANGE.

I wish I go wrong in above predications and we see Real Change and Acche Din for our people under Mr.MODI’s LEADERSHIP.

What is my message to NORMAL INVESTOR?

You are investing in most difficult time of the year. You need vision for the coming scenario before you can invest your hard earned money. By the grace of my GURU, I am able to give right advice ahead of the time.

If you really want to make money while market is moving up or down – join our advisory services.

Wish you a happy investing.

Hitesh Parikh.