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Posted by admin in Domestic Policy, Economics, Politics & International Relations on October 12th, 2014
Islamabad: June 12, 2013
The Federal Government will announce the budget for 2013-14 this evening. Ishaq Dar, the Finance Minister, will be intoning and juggling figures, incomprehensible to the country’s 180 million deaf and dumb creatures. I laugh heartily at the regular comments of the super rich that the budget is the ‘poor peoples’ budget . The common people are not concerned because they have become stoics . They mostly live in villages under oppressive conditions without regular employment opportunities and without education , health care , potable drinking water and without electricity. The Government is not be trusted .
In the USA , the budget is discussed for an entire year i.e after its presentation by the President to the next year’s President’s speech . But then USA is the USA while Pakistan is Pakistan . Our Financial Year is July-June . From the 13th ,the budget will be discussed for a fortnight only upto the 25th.With the majority of members on the Government side , the discussions will be an eyewash only.
The only time when the country was not bored stiff by the high flown language of the budget was when Dr. Mahbub ul Haq was the Finance Minister in the mid eighties . He skipped over all the rubbish : the rhetoric before the actual budget relating to taxes and duties . He did not blame the previous governments of all wrongdoings under the sun. But he laid great emphasis on investment in the people viz. education and health which are taboo for the successive governments before and after him . He went to discuss the changes in taxes and duties . His budget speech was over in less than an hour .
Since the creation of the country , the common people whose miseries are bemoaned by every political worth his salt . While their condition is becoming worse with each passing day, successive governments blame the previous governments or the vagaries of the weather , the poverty line has reached 45 -50 % of the country’s population . The Government is levying taxes more than the capacity of the people to pay under the dictates of the donor agencies . The GNPs , the GDPs and the Per Capita Incomes are but poor indicators of a nation’s prosperity . The Government’s figures indicate the Per Capita Income is $ 1380 . Yet it is not visible on the people faces . The successive governments pride on the number of cars assembled locally and owned by Pakistanis , the number of motor cycles , the number of refrigerators , deep freezers or air conditioners assembled locally . It never shows the number of children without education and health facilities , the number who are without potable drinking water . The Government figures indicate the number of houses in the country or by cities . They never indicate where they are located in posh localities or in slums .
Prosperity and happiness are written on the faces of the people whereas the Pakistanis are glum and depressed . Countless people do not know where the next meal is going to come from . Education and health care is becoming expensive day by day . Even children in Montessoris attend tuition centres whose fees are around Rs 4000/- per month .All this tantamount to the ‘Education Genocide’. School drop outs are routine : the people inability to pay the expenditure related to education.
The fault lies with the interest based economic system. The experts have been trained in educational centres modeled in the West : by modeled by Bretten Woods financial Institutions — the World Bank, the IMF which are interest based.
Pakistan started borrowing from the World Bank and the International Monetary Fund in 1950 on their terms instead of the Government exploiting the country’s resources . The Bank’s interest rates are based on commercial banks rates prevailing New York .
During the military regime of General Musharraf , the Prime Minister and Finance Minister , Shaukat Aziz , liberalized the imports of non essential items . Loans and credit , both foreign and domestic banks ( the latter to the influential few ), were easily available . Thus the elite lived beyond the country’s means . However , in the Civil Government that followed, the donors tightened their purse string in view of the adverse reputation of that Government . Resultantly , it went for bank borrowings and deficit financing both of them were injurious to the country’s financial health . During the past five years , the total , both domestic and external , ballooned to unimaginable proportions . One could visualize the grim face of Ghulam Ishaq Khan , one of Pakistan’s most stern finance managers .
Three recent statements made by prominent people merit attention :-
In the Capitalist system , most countries were in danger of a meltdown . They are borrowing from wealthy countries like Germany and France . The USA has to repay the Chinese loan of $ 16 Trillion . The country’s debt is equal i.e $ 16 Trillion .
Men and women both from the developed world and third countries are working for longer hours or they are working in two or three jobs a day to enable them to live in comfort but they are not happy . Leisure , like everything ,can be had but at a price . The question that arises in one’s mind “what at cost “ . The world has seen the failure of the Capitalist System . This is the modern version of ‘Slave Trade’.
Before the advent of the banking system , interest based income , the paper currency , the floating exchange rate , devaluation or revaluation , recession , stagflation ,the basket of currencies , people and nations traded either through barter or metals the most favoured ones were gold and silver . That is Islam advocates : the abolition of interest , the abolition of exploitation , the abolition of the Capitalist System and the abolition of paper currency . Allow the people to be happy and not in ‘human bondage ‘.
Muslim Government and Muslim scholars must do their homework and establish a framework as an alternative economic system based on the Islamic teachings .
To be continued…………
The writer is not a world famous Economist’
Mahfooz ur Rahman
Islamabad: June 12 , 2013
Posted by admin in India Hall of Shame on September 15th, 2013
A construction site at a standstill in Mumbai, India, where the real estate market is crumbling as the economy slows.
With no construction jobs available, a migrant worker from Bihar works part time as an attendant at a common toilet near an idled building site.
MUMBAI, India — The Orbit Grand, a block-size complex designed to have at least 26 floors of elegant apartments, an extensive array of ground-floor stores and abundant parking for the chauffeured cars of residents and shoppers, was supposed to be a diadem of India’s real estate market.
Now it is turning into a symbol of the slumping fortunes of property developers and owners in a once-promising emerging economy. Construction of the Orbit Grand has almost completely stalled at the 10th floor, the tower crane at the site seldom moves and the builder has defaulted on its loan. “There’s no real work going on right now. There’s just a minimum number of workers coming in to do small things,” said Alam Sheikh, an electrician who is one of just 14 builders left at the site.
The real estate market in cities across India is crumbling as the Indian economy slows. The rupee has dropped nearly 20 percent against the dollar since early May, scaring away foreign investors. The Reserve Bank of India, the country’s central bank, raised a key short-term interest rate for commercial banks’ borrowing by two full percentage points in mid-July, to 10.25 percent, mainly to prevent further declines in the rupee. To put a brake on the flow of money leaving the country, the central bank followed up last month with a regulation banning Indians from transferring money overseas for real estate purchases.
Rising financing costs are all the more painful because India’s real estate developments take a long time to build because of a vast and often corrupt regulatory apparatus. Publicly traded real estate investment groups in India are heavily in debt, so they struggle to make interest payments and are not in a position to bankroll further projects.
That combination has produced almost unanimous bearishness about the short-term prospects for residential, commercial and industrial real estate prices in India. Sanjay Dutt, the executive managing director for South Asia at Cushman & Wakefield, the world’s largest privately held commercial real estate company, predicted that prices would fall 10 percent in big Indian cities and 15 percent on the outskirts of large cities, where many speculative projects have been built. He said, “Given the universal sentiment of the market, there could be a sharp correction between now and Gudi Padwa,” an annual festival next March that has long been considered in India an auspicious time to buy real estate.
What has sustained prices so far, and what might prevent more serious losses than those predicted by Mr. Dutt, has been the willingness of developers to hold growing inventories of unsold apartments, shops and offices without offering price discounts. The volume of real estate transactions has slumped in India as developers have refused to offer discounts for fear of starting a market rout. “If they drop prices, investors will panic and it will be a self-fulfilling prophecy,” causing further declines in prices, said Siddharth Yog, a co-founder and managing partner of the Xander Group, a large international real estate investment firm started in 2005. That was the year India began allowing foreign institutional investors into its real estate market.
But with sellers refusing to cut prices, many potential buyers are losing interest. Devkinandan Agarwal, a Mumbai broker with three-quarters of his business in residential real estate and the rest in commercial real estate, said that until the last few months, he had at least three or four separate meetings each day with genuine, interested buyers; now he has only one a day.
“There are now only actual users in the market, there is hardly anyone buying real estate as an investment,” he said. One longstanding complaint about business practices in India is that the country’s banks lend heavily to a wealthy elite who often put very little of their own money into deals. These developers rely on minority investors and bank loans for most of the financing. India’s debt tribunals, for companies unable to repay what they have borrowed, have tended to move slowly. They are reluctant to force founders of companies to incur large losses even in corporate reorganizations in which creditors and minority investors lose heavily.
Raghuram Rajan, the new governor of the Reserve Bank of India, said at his inaugural news conference last Wednesday that he would try to change this. “Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalize their failed ventures,” he said.
Bimal Jalan, a former chief economic adviser to the Indian government who was also the governor of the central bank from 1997 to 2003, said in a telephone interview from New Delhi that the broader Indian economy could escape serious harm even if real estate prices did decline. India has low rates of homeownership, so families are less likely to be worried about falling home prices and cut household spending. Housing finance has played a small role in the Indian banking system, so Indian banks are less vulnerable to real estate downturns than banks in the West, Mr. Jalan said. Regulatory obstacles have slowed the pace of construction and limited the number of buildings to finance.
The construction of the Orbit Grand here illustrates many of the issues in Indian real estate, including costly regulatory delays. The Orbit Corporation, a publicly traded Mumbai developer, began building the complex and several others in western India with a $62 million loan in 2008 from LIC Housing Finance Ltd., based in Mumbai. But a combination of litigation over whether Orbit had full title to the entire site, which Orbit did not win until last March, together with a new set of municipal real estate regulations introduced in late 2010, slowed the pace of construction and prevented Orbit from preselling apartments. The company actually had to erect two separate buildings, with plans to join them together later, because the litigation, a chronic problem in Indian real estate, delayed construction on the 30 percent of the site’s acreage that was in question.
“This led to a severe cash crunch at the company and resulted in the stalling construction of the project,” said Ramashrya Yadav, the chief financial officer at Orbit. Orbit defaulted on the LIC loan at the end of last year with a little more than a third of the original balance not yet repaid. LIC put the Orbit Grand into receivership in early August. But as often happens in India, Orbit has kept control of the sites. Mr. Yadav said that Orbit had now raised the money to finish the projects, and it received the needed environmental clearances four weeks ago. The Orbit Grand stalled with 10 stories completed out of 26, although the firm is seeking regulatory approval to extend the building up to 36 stories. Another project, less than a mile away, Orbit Terraces, stalled with 40 of 60 floors built.
Orbit requires the permission of LIC to sell units, and any sales must go toward the defaulted loan. Mr. Yadav predicted that Orbit would be able to repay the defaulted loan within seven months, while acknowledging that the company faced a tough market for selling apartments. “As liquidity dries up, a price fall is also imminent,” he said. LIC declined to comment. While foreign investors in Indian real estate are licking their wounds after the 17.5 percent fall in the rupee against the dollar since the start of May, they do have one consolation. The longstanding shortage of space in many Indian cities because of regulatory barriers to new construction translates into high occupancy rates and steady rental incomes for commercial and residential real estate, at least in rupee terms.
“In terms of the underlying portfolio, tenant demand has been very good — there has been limited construction in the last few years because of tight credit, and that has slowed the supply of new offices,” said Christopher Heady, the Blackstone partner overseeing Asian real estate investments. The asset management firm Blackstone has invested $600 million in Indian real estate, mainly office complexes in Bangalore, a center of the information technology and outsourcing industries in southern India. These sectors have a lot of multinationals and big Indian companies that are reliable renters, Mr. Heady said, adding that these clients are “continuing to grow pretty rapidly.”
But leaving aside a few exporters of services like computer software, most of the economy is struggling. Manish Jain moved his jewelry store last January into retail space at the base of the unfinished Orbit Grand, but has found that customers are more interested in pawning jewelry they already have — and the people doing the pawning are increasingly those wearing suits, not just shirts or saris. “They are going through a tough financial crisis,” he said. “At first, we only saw people from the service class, lower-income people, but now we are seeing business people, too.”
This article has been revised to reflect the following correction:
Correction: September 12, 2013
An article on Wednesday about a slump in India’s housing market misstated the tenure of Bimal Jalan as governor of the Reserve Bank of India. He served from 1997 to 2003, not from 2000 to 2004.
Reference
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