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UF Govt, at best, is mutispeak: HDFC chief - The Times of India

Business Times Bureau ()
19 December 1996

Title : UF govt., at best, is multispeak : HDFC chief
Author : Business Times Bureau
Publication : The Times of India
Date : December 19, 1996

"Neither here nor there, just about sums up the first six months of the
13-party coalition government. We had expected the politics of compromise but
we have been served the politics of confusion," said Housing Development
Finance Corporation (HDFC) chairman Deepak Parekh. Delivering his acceptance
speech after being declared businessman of the year, Mr Parekh contrasted the
Indian situation with what was happening around the world.

"The good news is that virtually everyone now agrees that there is a problem
with the economy. There might be a difference of opinion on the terminology
- recession or just slow-down, but the fact of a crisis is undisputed," the
HDFC chairman said.

"Nothing seems to work and the mood has turned distinctly adverse. The
seachange in the mood of industry, as the economy falters in the last months
of fiscal 1997, has been given a further blow by the recent raids and action
against corporate houses by the Enforcement Directorate."

While the rest of the world was speeding ahead smoothly, the lack of a
decisive leadership in India was leading to a government that was speaking in
so many different voices, said Mr. Parekh. "Multispeak is at its best," he

"We no longer have the time to contemplate world events and react at
leisure," Mr Parekh said, bringing out the sharp contrast between world
events of the last fortnight and those in India. He observed that the United
States was rapidly enhancing NAFTA into a single bloc encompassing the whole
of the Americas. He added that after years of haggling over the Uruguay
Round, the World Trade Organisation meet at Singapore reached some swift
decisions; and Europe reached an agreement over the formal launch of a single
Euro currency. These, Mr Parekh said, indicated that trade and commerce was
the principal agenda of all the nations.

In India, however, there were revelations regarding the fortune amassed by
Jayalalitha, following close on the heels of the telecom scandal involving
Sukh Ram, and the cobbler scam involving local Mumbai politicians, Mr Parekh
pointed out. "The imbroglio in UP is symptomatic of the times we live in,
where self-serving politicians have subordinated the interests of our most
populous state to their own narrow interests."

In a hard-hitting attack on politicians, the bureaucracy and the judiciary,
he remarked, "The vacuum in our political leadership has taken its toll on
the bureaucracy. The merits of doing nothing clearly outweigh the possibility
of future inquisitions relating to past acts of commission. Judicial activism
continues to increase, to reach levels approaching judicial militancy. In the
meantime, judicial processes remain tardy and ineffective, with obsolete
legislation drafted in the mid-nineteenth century forming the basis of our
commercial code."

On specific areas of concern in the Indian economy, Mr Parekh commented on
the hardening of prices of oil in world markets causing alarming deficits in
the oil pool account. "The gap on the oil account has risen to Rs 13,000
crores and may reach Rs 15,000 crores by March 1997 thrice its level last
year," he said. While political compulsions have precluded the raising of oil
prices, domestic production of crude oil is falling along with increasing

"The estimated annual import of crude and petroleum products is likely to
reach $ 10 billion (Rs 35,000 crores) - about 30 per cent higher than last
year and forms 25 per cent of all Imports," he observed, pointing out that
there was no sign of a concrete energy policy to meet this dangerous threat
to the nation's solvency. "And in the meantime, we continue to flare gas."

Uncontrolled government spending and rising subsidies (fertilisers and fuel)
were ensuring that the fiscal deficit continued to be of concern, he
observed. "The compulsions of the coalition government will, no doubt, mean
that issue prices of foodgrains also cannot fully reflect cost. other
implicit subsidies, such as those of loss-making PSUs cannot be touched given
the fragile coalition."

"I would like to believe the finance minister when he vociferously maintains
that he is on target to contain the fiscal deficit to 5 per cent of the GDP
this year. However, I am unable to tally the arithmetic, and am concerned
with the adverse economic consequences of an uncontainable deficit."

The latest figures, Mr Parekh said, showing a sharp slowdown in export growth
was alarming news. "Once exports turn sluggish, it is difficult to "grow"
them again. The export target was fixed at $36 billion for 1996-97
anticipating the previous year's rate of 20 per cent. However, growth in the
first eight months was well below the 10 per cent-mark. The trade deficit is
likely to be nearer $6 billion than $4.4 billion as forecast earlier."

Stressing the need for land reforms, the HDFC chairman said the provision of
urban infrastructure would be crucial for the sustained growth of the
economy. "Our cities and towns are facing a major crisis from years of
neglect, under investment and inappropriate governance", he said. "They must
be upgraded and replanned to meet the economic challenges that India's new
economic thrust will demand more efficient and livable cities where people
and businesses can thrive."

On recent actions against banks and bankers, Mr Parekh said that while no one
denied that malfeasance had to be investigated and punished, the question
was, whether every non-performing loan was a criminal act and every sick
account a result of collusion by bankers. An assurance from the highest
authorities that legitimate errors would not invite criminal action, was
needed on an urgent basis.

The capital markets continued to be in disarray with no redeeming feature
insight. Piece-meal and adhoc reforms with a tendency to over-regulate and
under-supervise was the order of the day. The loss of confidence of
individual investors in both the primary and secondary market was the result
of a lack of liquidity, uncertainty in the quality of the paper being bought,
the clearing and settlement system and the ambivalent attitude towards the
broking community. This uncertainty had clearly led to a withdrawal by a
large class of investors. Simplified, transparent and quick settlement
systems were the foundation of the market and the sooner it was real, the
sooner would the markets begin to recover.

Citing figures, he pointed out that the specified group of the Bombay Stock
Exchange, comprising 60 largely blue-chip stocks, had lost a whopping Rs
89,043 crores in market capitalisation since April 30,1996. The
non-specified groups of roughly 6,000 scrips lost Rs 88,109 crores in the
same period, bringing the total market capitalisation down from Rs 6 lakh
crores to Rs 4.2 lakh crores. Over a third of the 6,000 odd scrips were
quoting below their book-value and 20 per cent below their par value (Rs 10).

The only good news, according to Mr Parekh, was in sectors such as
agricultural production, which continued to be buoyant and was likely to grow
at about 4 per cent with a record of 191 million tonnes of foodgrain
production. Other positive factors, he felt, was that the increased income
with agrarian communities could fuel consumer demand and assist our troubled
industry. Forex reserves had remained at $19.5 billion, though the country
was still a distance from achieving the objective of attracting FDI of $10
billion a year.

He went on to say, "I am wholly frustrated at the continuous stonewalling of
government agencies that precludes the speedy Implementation of projects.
Simply stated, the government is yet to appreciate its role as a facilitator
and a partner in projects, rather than a vendor or a provider of largesse to
contractors. We cannot have PWD superintendents pass judgement on projects
where the ministry has no capital outlay, nor have interminable committees of
the environment ministry hold up projects with a cavalier lack of urgency. I
am hopeful that the recently constituted cabinet committee on infrastructure
would emerge equipped to handle this challenge."

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