UNLOCK INDIA - ALL IS NOT WELL ....

Many of my friends are unable to understand the grave economic situation around us and why the four horsemen have a big role to play in India's post covid future. Let me explain in simple words.

Remember the imaginary Schr?dinger’s cat experiment?

Where a cat is left in a box along with an unstable atom which has about a 50% chance of undergoing radioactive decay? If it does, the cat dies. If it doesn’t, the cat survives.

But till you open the box, the cat is considered to be equally dead and alive.

That’s quantum mechanics. But it’s almost as if economies, including India’s, are facing a similar predicament. Till the varying lockdowns across the nation and across different states are lifted, you won’t know how alive the economy really is.

India crossed 1.5 Million mark as Delhi overtakes Mumbai in a race noone wants 2 win

THE FANTASTIC 4

Mumbai - Delhi - Bangalore - Chennai are the 4 horsemen galloping towards India's dream of 5 Trillion Dollor Economy.

Think of these as 4 brothers living in a large joint family (India).

Mr Mumbaikar contributes 6.8 % and Mr Dilliwala contributes 4.2 % to the total family income (India's GDP)

• Mr Dilliwala has 4 sons who are dependant on him for their business (Gurgaon, Faridabad, Noida & Gazhiabad)
• Mr Mumbaikar has 4 daughters who run shops selling his items ( Pune, Nashik, Aurangabad & Surat)
• With Mr Mumkar hospitalised & Mr Dilliwala business shut, the sons & daughters are affected directly too.

Their elder brother 'Anna' from Chennai & 'Macha' from Bengaluru fly in to help the family and unfortunately catch the virus too.

• Anna's family contributes around 2.5 % and Mr Macha shares 2 % to the family income.

So suddenly the joint family has a danger of losing 20 - 23 % of their combined annual income

MUMBAI - DELHI ECONOMIC IMPORTANCE

Maharashtra crossed the 4 lakh mark in covid-19 cases with Mumbai at 1 lakh+ is already double that of Wuhan.

MUMBAI closures comes at a huge economic cost. Mumbai is the heart of India, a very cosmopolitan city with a never-die attitude; working 24x7, pumping and pushing the blood (money) to keep India alive.

• Mumbai contributes 6.8% to India's GDP and 66% to Maharashtra's GDP
• 10% of factory hiring of the country happens in Mumbai
• 60% of custom duty pan India
• 30% of India's Income Tax (Direct Tax) comes from Mumbai
• Mumbai's drives the Real Estate market in India. (FY20 Mumbai market was around Rs 12,000 crore in terms of capital value). This is a mojor chunk of Indian Real estate sector which contributes 13 per cent to the country's GDP.

DELHI is India's brain where emotions and decisions affecting 1.3 billion are made.

• Delhi is only 1.4% of the total population of the country yet contributes 4.2% to the national Gross Domestic Product (GDP)
• The NCR region collects 14.3% Income Tax (Direct Tax) of the country
• It is one of the few revenue surplus states (UT) in the country having tax collection growth (Avg +10%) and 8% (Avg) economic growth for last 5 years

WHY KARNATAKA & TAMIL NADU MATTER NEXT ?

Tamil Nadu and Karnataka are among the biggest states in the country in terms of GDP and Population. Rising cases despite lockdowns show that they are 3 weeks behind Mumbai in the Covid trend and we can forecast the pandemic here until end of August.

Infact according to the WEF, Bengaluru & Chennai are in the top 10's fastest growing cities in the world (economically)

BENGALURU

Karnataka has recorded the highest growth rates regarding GDP and per capita GDP in the last decade when compared to other states. Karnataka also drives the information technology sector in India and its capital Bengaluru is known as the Silicon Valley of India.

• IT Sector contributes 8% to India's GDP and has a revenue of 177 Billion $ out of which 136 Billion is Exports ( That 25% of India's total exports)
• More than 2 crore citizens are directly & indirectly employed by this sector

CHENNAI

Tamil Nadu leads the second position with its large-scale production of agricultural products. Chennai is the second leading software exporter in India. Companies like Cognizant, Covansys, Xansa, Verizon, iSoft, Invensys, Schneider Electric, and many others are Chennai-based.

Additionally it is one of the largest automotive clusters in India

TWO KEY ECONOMIC INDICATORS RAISING RED FLAGS

1. GDP CONTRIBUTION OF STATES
2. DEBT OF STATES

3 STATES' CONTRIBUTION TO INDIA'S GDP HIGHER THAN THAT OF 20 STATES COMBINED

Maharashtra, Tamil Nadu, Karnataka, Gujarat which have hishest Corona cases contribute 40% of India's GDP. Uneven development of the states highlight the bigger threat of Covid

THE ECONOMIC DISPARITY within India’s states is among the largest in the world. In 1960, the average person in West Bengal earned Rs 390 per annum while the average person in Tamil Nadu earned Rs 330. But in 2014, the average Bengali earned Rs 80,000 while the average Tamilian earned Rs 1,36,000.

Tamil Nadu went from being the fourth poorest state in 1960 to the second richest in 2014. The southern states of Kerala, Tamil Nadu, and Karnataka have risen rapidly while northern states like West Bengal and Rajasthan have dropped down the order of the richest big states.

Most of these states had similar GDP in 1960, but the situation seems very different now.

In 1960, the top three states were 1.7 times richer than the bottom three. By 2014, this gap had almost doubled, with the major three States being three times richer than the bottom three.

In 1960, Maharashtra was twice as rich as Bihar (the poorest state then). In 2014, Kerala was four times richer than Bihar, still the poorest.

This gap between the richest and the poorest large states in India is among the highest in the world. Economic theories suggest that the poorer regions grow faster to catch up with the richer states but in India, the trend of increasing disparity still continues

CORONA HAS GREATER IMPACT ON INDUSTRY AND LESS ON AGRICULTURE

Maharashtra, Tamil Nadu, Karnataka, Gujarat all have Industry & Services greater than 90% of their economy. With industry affected by lockdown & absence of labourers these will be hardhit. The silver lining is the Services sector which has been operating remotely and can have most of its employees work from home.

As more companies look toward automation to cut costs and lower their dependance on labour force we will see a considerable unemployment problem over next 5 year period.

Karnataka has a substantial services contribution, at 68.5% of GVA, with industry at merely 23.7%. Maharashtra and Tamil Nadu’s GVA composition is more balanced, but still reliant on services at 50%-plus. While Gujarat must learn from these three states on developing the services sector with high value-add, the other states must learn from Gujarat how to industrialise sustainably as a vital source of employment and economic growth.

HIGH SPENDERS ARE HIGH BORROWERS

The state governments’ market borrowings, which is the chief source of funding of their gross fiscal deficits, have risen sharply so far during the current financial year as they struggle to tackle the COVID-19 led financial constraints.

Cumulatively, the states have raised Rs 1.67 lakh crore via market borrowings during April-June period, which is double the borrowings (Rs 0.82 lakh crore) in the corresponding period from a year ago, shows a Care Ratings analysis.

Tamil Nadu + Karnataka + Maharashtra is more than 60 % of Total Borrowing of All States.

KEY OBSERVATIONS

1. States would face significant slippages from the current financial year, with the extent of slippage varying depending on the pace at which economic activity limps back to normalcy.
2. August - December will see high layoff's and rising unemployment
3. Significant workforce dependence on a low-performing sector like agriculture is problematic.
4. Lack of job creation in high-population regions is leading to economic inequity in the country.
5. Export-Export-Export might be a game changer for India

THE WORST IS NOT YET OVER AND Q3 & Q4 WILL ACTUALLY SHOW US THE REAL PICTURE OF HOW HARD THE INDIAN ECONOMY IS HIT BY COVID-19

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