Mises India: Prepare for more insolvencies and bankruptcies

LAW & ECONOMICS, Mises India, MONEY / Sunday, June 23rd, 2019

By Madhusudan Raj on Mises India

Indian businesses, especially the so-called ‘too big to fail’ ones, are drowning in debt and are failing one after another. Here is a list of few of these businesses:

First, the IL&FS default and insolvency. Also, DHLF, another giant housing finance company, is also near default.

Second, Baba Ramdev’s Patanjali is struggling hard with slower sales and falling revenues. The major reason behind Ramdev’s fall is, Patanjali also suffered, like many others, from Modi’s 2016 ban on high-denomination banknotes and 2017 introduction of a new goods and services tax. The moves disrupted economic activity.

Third, India’s second biggest private airline company Jet Airways has gone belly up after around 40 years of successful business. It couldn’t service its debt.

Fourth, the Birla family owned Yash Birla Group has defaulted on its debt payment. Its owner Yashovardhan Birla is now declared a ‘willful defaulter’ by UCO bank.

And then the big one, Anil Ambani (The Reliance Group), who was the sixth richest man of India, has crashed out of Indian billionaire club. He has lost his empire in paying back a total debt of over Rs 1.7 lakh crore. He just survived incarceration after his billionaire brother paid some of his dues. Many Chinese banks are still asking him to repay his loans.

As if this was not enough, the new 5G technology war between major telecom operators, which includes India’s richest man Mukesh Ambani, is now threatening their account books too. Mukesh Ambani’s Jio as well as Vodafone Idea Ltd., and Bharti Airtel Ltd., have racked up a huge debt of US$ 59 billion already and now these companies are not in a position to handle another round of borrowing. The future of these companies also look grim. Any big jolt and they will be exposed like those above mentioned.

Why is this happening?

Indian economy is seriously struggling since, at least, 2007 when the US subprime credit crisis plunged the world into yet another protracted recession. While economy was languishing since last decade, it got hit by one after another sucker punches from Modi government’s illogical policies of demonetization, GST and a spat of welfare spending, which deprived the private sector of scarce resources, on various boondoggles. The tax regime in India is also becoming draconian and overall regime uncertainty is on the rise. The trade war is intensifying and protectionism is on the rise too. These sucker punches proved fatal for many of these big businesses.

The prime reason for this drowning in debt is that most Indian big businesses, e.g., the billionaire club guys, are fascist organizations which benefit from government largess and its central bank’s lose money policies. Because of this they are heavily dependent on that largess and lose money policy. And this is also the reason why they are heavily vulnerable to the boom-bust crisis. Years of Keynesian policy of ‘spending to spur growth’ has indebted the economy and these major companies. Spending one’s way out of crisis is impossible because that very spending is the cause of the crisis!

After winning his reelection bid Modi government is again gearing up for big spending programs. Modi government’s future reforms are going to create more troubles for Indian businesses. The Indian central bank RBI continues the very same lose money policy that is responsible for this debacle. All these mean we are going to witness more defaults, insolvencies and bankruptcies in the coming future.

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