The economy just won't let go.

Proving how little the World Famous Economist knows about economics the GDP growth for 2011-12 came in at 6.5% when he has been confidently predicting 7%+ all along. What has scared the bejesus out of the market is that growth has been falling right through the financial year. In the first quarter it was 8%, in the second 6.7%, in the third it was 6.1% and in the final quarter it was 5.3%. Having increased spending by instituting a number of social schemes and increasing salaries of useless civil servants by 80% leading to a leap in deficit and inflation the government has increased taxes right across the board in panic. This has naturally increased inflation and hit the middle class hard who have responded by reducing spending. Net financial savings dipped to 9.7% of GDP in 2011-12 compared to 12.1% a year ago showing the stress people are under due to rising prices. Falling demand means less sales for industries which is reflected in falling growth in industrial production. The State Bank of India has Non Performing Assets, which means bad loans, of Rs 400.8 billion. There has been a rise in debt restructuring of corporate debt to Rs 762.51, an increase of 300%. Now the government has asked banks to restructure loans of the textile sector worth Rs 350 billion. TOI, May 31. The total exposure of banks to the sector is Rs 1.56 trillion which means a third of the loans need to be restructured. So what is the government going to do, apart from running around in circles and blaming Europe, Anna Hazare and the bogeyman. Our most revered Finance Minister is going to hold a meeting. Oh yes. He will review 32 large infrastructure projects worth Rs 1.8 trillion and try to speed them up in order to boost the economy. This spending will be financed by public sector banks. Where will they get so much cash? Basel III rules for banks start January 1, 2013, in 6 months time. SBI group needs to raise up to $ 14 billion by 2015 to comply with the new rules. Indian banks need to raise $30 billion or Rs 1.67 trillion in the next 5 years. So on the one hand the government expects banks to lend to infrastructure projects and restructure loans and on the other to be Basel III compliant. What politicians and business bosses are praying for is a reduction in interest rates, never mind inflation above 10%. The reason is that every company has moved into construction because of the 800% rise in property prices. The only reason the property price bubble has not collapsed in India, as it has done in the US, Ireland and Spain, is because you have to pay half the price of any property in cash or black money. To protect this investment Indians never default on their mortgages and foreclosure is unheard of. Around 500,000 apartments are being constructed in Delhi and surrounding suburbs, 86000 will be ready in 2012. If properties remain unsold a lot of companies could go belly up and banks would come under pressure. However, reducing interest rates to help the property sector will increase black money in the economy and lead to inflation and a fall in the rupee. The World Famous Economist has no idea what to do. What a mess!