Tag: SPJIMR

Economic Survey 2020: Here’s what economists, statistician make of it

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government tabled Economic Survey 2020 in Parliament. Indranil Pan, chief economist at IDFC First Bank, Pronab Sen, former chief statistician and Ananth Narayan, professor at SPJIMR shared their views and readings on the survey.

On the fiscal deficit front Sen said, “The point is as far as FY20 is concerned, there will be a breach. The real question is what it is saying about 2021 – that’s more interesting because what you have is 2 statements – one is not mentioning anything about the fiscal deficit but talking about the expansionary fiscal policy. I don’t see how you are going to have an expansion in fiscal policy without some breach of the glide path if not this year’s breach target.”

“All it is saying is that it is going to breach and if it’s going to breach only because of the giveaways that have happened in the last 3 months or so, then it means you are still continuing to hide the problem under the carpet,” said Sen.

When asked about Essential Commodities Act, Sen said, “We have been talking about scrapping the Essential Commodities Act (ECA) for many years now and the subsequent governments have talked about it and have not been able to do anything about it. I see no reason why the same set of issues would not crop up now. The real question is do you want to do away with the ECA or do you want to dilute it in some manner. I think doing away with it is a bad idea because it does have an important role to play, but diluting it and bringing in some discipline is not such a bad thing.”

On 6-6.5% GDP forecast for next year as well as on the hope that growth will pick up in the second half of FY21, Indranil Pan of IDFC First Bank said, “On the growth front we are expecting that there could be a better growth performance for the economy in the second half relative to the first half and that – we were anyway sort of building in our 5 percent model for gross domestic product (GDP) for the current fiscal year. For the next fiscal year, a lot would depend on not only the domestic conditions but even the global conditions, where we see the coronavirus issue affecting the financial markets and therefore we need to look at that perspective also.”

SPJIMR’s, Ananth Narayan said, “There is no doubt that we need to get the credit chugging in the system again and for a variety of reasons banks and financial services ecosystem is no shape right now to fund India’s growth. I think a big part of that is actually  two-fold. First is there is this overhang of non-performing assets, a lot of it is in real sector particularly for NBFCs but it is not limited to real estate alone. It is whole series of sectors. Something has to be done to quarantine these non-performing assets, and the full recognition is not done as yet.”

“The National Company Law Tribunal (NCLT) and Insolvency and Bankruptcy Code (IBC) is working well but it is in no position to handle this huge stock of non-performing assets (NPA) that we have. It is important therefore that something be done as a onetime exercise to remove the burden of non-performing assets from the financial services ecosystem.”

“It sounds like a bad idea to have a troubled asset relief program (TARP) or a bad bank because it sounds like throwing good money after bad which is why it is essential that alongside that there has to be accountability and more importantly reform,” added Narayan.

When asked about ‘Assemble In India’ concept, Narayan said, “I am all for investments. I thought the last year’s Economic Survey which focused a lot on investments, struck the right tone. I know the debate today is about consumption, but funnily India tends to consume when there are investments going through.”

“Unfortunately, there are only two avenues for investment, one is of course the government. Given the lack of fiscal space and the lack of track record on successful government investments beyond roads for instance, that is not a very promising area. Second area of course has to be on foreign direct investments (FDI) and anything to push up FDI is great. ‘Assemble in India’ as a phrase sounds great because if you are moving supply chains of telecom, etc. from China and Taiwan into India, you will start with assembly because the entire supply chain down to chips, etc. will take a long time develop in India. So, starting as assembly, it strikes the right note. However, a phrase, a catchphrase and a slogan is not just enough, there are plenty of things that go along with it – land laws, labour laws, actual ease of doing business on the ground and not the World Bank number, contract enforcement, predictability of policy, and of course the point about you need to open up imports; if you want re-export, you have to open up your imports in a big way and not put tariffs and trade barriers around that,” said Narayan, adding that  it is a whole ecosystem which has to be addressed. It does sound like boiling the ocean and a lot of people will say that this cannot be done, but I think India frankly has no other option but to go down this path, otherwise we are looking at a demographic dividend which is just not being reaped at this point of time,” he further added.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Arun Jaitley hints interim budget could be bigger than a vote on account: Here’s what experts have to say

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

At the CNBC-TV18 India Business Leader Awards (IBLA), the union finance minister Arun Jaitley almost launched a budget curtain raiser by hinting that a relief package for farm sector is merited.

CNBC-TV18 caught up with Ananth Narayan, professor at SPJIMR; Abhishek Upadhyay, senior economist at ICICI Securities PD; Suyash Choudhary, head – fixed income at IDFC MF and Pronab Sen, former Principal Economic Advisor to the erstwhile Planning Commission, to discuss how such a relief package may be provided in a vote on account and what impact that may have on the economy and more importantly on the cost of capital.

Narayan said, “There is a clear intent from the finance ministry of treating the current situation as exceptional and therefor launching something by way of a scheme to address the rural distress. I think it has implications for the fact that we already have a fiscal deficit situation, which is not looking good. And we are going to mask it by using a whole means of cute accounting standards. On top of that, if you add another fiscal slippage, it is going to put pressure on the macros. 

Upadhyay said, “For FY19, we are expecting government to print a deficit of 3.5 percent. Even this is optimistic and would be achieved only by creative accounting and slightly by shifting some expenditures off balance sheet by the government. For next year, it’s an interim budget and our sense is that nothing stops the finance minister from announcing a big new scheme. Similarly, announcements would be made in the interim budget, but sufficient provisions would not be there.”

Choudhary said, “Whatever the package government announces in the budget, it has two implications. One to the fiscal deficit target and two, how does it change RBI’s response function if at all. I read somewhere that NITI Aayog’s point of view is that a lot of the existing subsidies including fertilisers, power and some other input costs should be subsumed into a basic transfer scheme.

Sen said, “I don’t think waiver is a way out. The opposition has already taken that hunter. So, I do not think that is going to happen. The most practical thing they could do without any budgetary implications at the moment is to simply tell the banks that we are invoking force majeure, so please rollover the agricultural debt over the next two years. That is easy to do, but it requires is an acceptance that the current state of being is the result of demonetisation.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI’s Excess Capital: Here’s why this obsession seems fairly pointless

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The expert committee set to review the Economic Capital Framework of the Reserve Bank of India (RBI) has been tasked with suggesting an “adequate” level of capital that the central bank needs to maintain. There are persuasive arguments that suggest the RBI holds more than adequate capital.

However, there are additional, related questions that are critically important to debate. One, what has the RBI done with its “excess” capital – has it stuffed cash in a mattress somewhere, and denied useful funds to the country? Two, what could be the consequences of RBI transferring its “excess capital” to the government?

These are important questions, particularly in light of our extraordinary fiscal and monetary context. Looking past cynical accounting, the quality and extent of our fiscal deficit has seriously deteriorated in recent times. This is even before any extraordinary pre-election fiscal doles. On the monetary side, RBI’s huge purchase of Government of India (GOI) bonds in the name of injecting durable liquidity is already facilitating this fiscal splurge. Any additional standalone RBI transfer of excess capital will tantamount to our central bank creating fresh money for the government to spend.

This brings us to the overarching question that truly merits a quality debate. Can we emerge unscathed from this fiscal and monetary context?

Excess Money Stuffed In A Mattress At RBI?

I agree with the broad point made by many commentators, including former chief economic advisor Arvind Subramanian, that the RBI holds more capital than is required. Specifically, RBI has been building a Contingency Fund out of its income while practically ignoring the buffer it holds in the form of enormous currency revaluation reserves.

However, I disagree with the imputed inference that the funds have been denied to the country and should now be used for purposes such as recapitalising the country’s banks. RBI’s excess capital is not stuffed in any mattress in Mint Street – it’s part of the fungible pool of funds (alongside bank balances, government balances and currency in circulation) that the RBI has deployed into foreign currency reserves, and into over Rs 8 lakh crore of GOI bonds.

Suggestions that the capital should be used to recapitalise government-owned banks ignore the fact that the funds have already been deployed. In fact, given the appropriate level of foreign currency reserves is an independent decision, any excess capital has already been lent back to the government in the form of GOI bonds held by the RBI.

A fresh standalone transfer of excess capital to the government now, even as the RBI continues to hold government bonds, would be a simple creation of money. At best, any transfer to the government could be used solely to buyback the GOI bonds held by the RBI, allowing the government to reduce its outstanding debt.

Finally, this obsession for recapitalising banks using RBI’s excess capital seems fairly pointless. We have already crafted a fairly cute but effective method for recapitalising banks through recap bonds issued to banks, with minimal impact on liquidity and reported fiscal deficit. Why look for a cuter solution now?

Our Fiscal And Monetary Context

Here is a quick summary of our fiscal and monetary context.

Government data for eight months of financial year 2019 show that the Centre’s net total tax income has grown only by 4.4 percent year-on-year, well short of the budgeted 19.1 percent. At this rate, the Centre will end the year short  by Rs 1.85 lakh crore (1 percent of GDP) of tax revenues alone. Higher food and fuel subsidies and spending on schemes will pressure the expenditure budget as well even as state and central governments ponder mega pre-election doles.

Worryingly, unlike any rational household, we are borrowing more to pay our current bills than for productive investments. In fiscal speak, we are expanding our revenue deficit, while shrinking our capital spending. In addition, the FRBM act was modified in 2018, and the government is no longer bound to bring down revenue deficits over time. To address the headline deficit, we will undertake cosmetic accounting surgery. Expenses and refunds will be pushed to the next year, and government-owned entities (including the RBI) will be squeezed for every rupee. We do need to revise the government’s cynical accounting standards.

On the monetary side, in this year of fiscal strain, the RBI could purchase 80 percent of the central government’s net market borrowing from the market. Bizarrely, the RBI and some analysts justify this in the name of durable liquidity infusion. There are multiple instruments available to infuse liquidity besides GOI bond purchases – including CRR cuts, and long-term lending to banks against GOI bonds. These can infuse liquidity without distorting GOI bond markets as outright bond purchases do.

Any standalone payout from the RBI to the government will add to this monetary support for fiscal largesse.

Do I Worry Too Much?

In warning of fiscal and monetary excesses, am I clouded by old dogma that may no longer apply? After all, developed economies have undertaken extraordinary monetary and liquidity easing in the past decade. And yet, inflation in the West has remained remarkably well-behaved, and markets have emerged out of the global financial crisis.

In India as well, retail inflation is low. Can some fiscal and monetary expansion spur our economy with manageable side effects?

We heard these arguments in 2010-12 as well, and I continue to remain skeptical.

India’s retail inflation is depressed on account of food deflation and muted rural spending. Fiscal doles could lift rural spending. Food prices could mean revert, as production adjusts to prices. Finally, as we saw during 2010-12, fiscal doles risk an eventual spike in import demand and our current account deficit. As it is, our financial services ecosystem remains wobbly.

This fiscal and monetary experiment could leave us vulnerable to a twin deficit and financial stability crisis, unless our prayers for sustained low oil prices or similar manna from heaven are answered. The debate on the appropriate level of capital with the RBI will be incomplete without this larger debate on the consequences of our fiscal and monetary context.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI’s OMO purchase to provide huge liquidity support to bond markets, says Ananth Narayan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Reserve Bank of India (RBI) on Tuesday said it would inject Rs 50,000 crore into the system in January 2019 through a purchase of government securities.

To discuss the same, CNBC-TV18 spoke to MS Gopikrishnan, head macro trading, SA and financial markets at Standard Chartered Bank and Ananth Narayan, professor of SPJIMR.

“I think the size seems to be on the larger side. Markets were anticipating OMOs till March but the number was much smaller. I would probably put something like Rs 20,000 crore per month from January to March. Against that, we are seeing roughly Rs 50,000 crore per month which seems to be on the higher side. Markets will be surprised on the positive side and I think that will definitely have an impact on the yields in the morning. Just not immediately, in the run up to March, we will probably looking at yields falling further. Oil falling by 7-8 percent is definitely going to add to the positive sentiments to bond markets,” said Gopinathan on Wednesday.

Talking about how the OMO could provide liquidity support to the bond markets, Narayan said, “Overall for this financial year, assuming that they continue with Rs 50,000 crore from January to March, RBI would have effectively purchased Rs 3.36 lakh crore of government securities, which is a staggering 80 percent of the net issuance budgeted for this year by the central government. That is a huge amount of monetisation. It is a huge amount of liquidity support. Clearly, bond markets will celebrate Christmas and Diwali all put together for now. That trend will continue. It does raise larger questions about the medium-term but who bothers about the medium-term, we will worry about it later on.”

“Normally when you have fiscal slippages and you have monetary easing to support that kind of fiscal slippages, you would be concerned about inflation, you would be concerned about financial stability but clearly with consumer price index (CPI) prints surprising on the downside, 2.3 percent is a really low number and with oil prices coming off, those fears are relegated for the time being. The nature of our fiscal is not looking good. While we celebrate and while we feel happy about what is going on right now, farm loan waivers as it is even before these farm loan waivers started, we were having sharp reduction in tax collections, we were looking at a one percent slippage before accounting jugglery comes into play and plus now we have a competitive populism being the order of the day. It doesn’t augur well for the quality of the fiscal deficit,” he added.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow