Tuesday, September 29, 2015

Repo Rate Cut - What Does It Mean for India?

"My name is Raghuram Rajan and I do what I do" - Rajan in a decisive mode (Courtesy NDTV)
Raghuram Rajan, the hallowed Governor of the Reserve Bank of India (RBI), caught everyone by surprise today by announcing a 50 basis points (bps) cut in the repo rate, which is down to 6.75%. While the corporate world can sing hosannas about capital now being available and bankers can go gaga in turn while slashing their own rates, there are a couple of points that can get overlooked in this hyperbole, and need to be seen at carefully.

The RBI has clearly noted that the availability of capital can be a potential problem in pushing for economic growth, due to which the forecast was redefined. It is particularly telling that the cut has come at the time of the initiation of disbursal of loans to small and medium enterprises under the MUDRA scheme. The cut complements the initiative of the government and its funded banks very well. This also shows that the RBI governor, unnecessarily labeled as a hawkish governor, has seen enough data to be convinced with the need for a rate cut, and that the rate cut can go towards the correct target audience. The governor has also pointed out that the banks need to pass on the benefit of the previous cuts as well, and has specifically stated that banks need to reduce lending rates by a total of 125 bps, which can bring big relief even for the real estate sector among others.

The RBI has pointed out that their growth forecast for the Indian economy has been slashed downwards from 7.6% to 7.4% . With Mr Rajan clearly stating that the RBI has done all that it can in terms of its monetary policy manoeuvring, the onus is now on the government to remove structural bottlenecks from the economy. The starting point for the same can be the implementation of the Goods and Services Tax (GST) which can easily boost the GDP by a few percentage points. Another area can be the dilution of government stake in public sector enterprises and market linked re-capitalization of public sector banks, both of which hold promise to reduce government's fiscal targets. The RBI is optimistic about the fiscal deficit target, and it is now upto the Finance Minister Arun Jaitley to live up to the hype created by the move. The governor has still sounded a word of caution on the prevailing global turmoil, and Mr Jaitley needs to now rise to the occassion.





Sunday, September 20, 2015

The Overkill of Bihar Elections by Mainstream Media

I am going to stick my neck out and say that the Bihar elections are being oversold by the media as a mandate on one government or the other. There are several reasons to it, and we shall examine them in some depth as follows.

1. Bihar has a footprint on national politics
Not anymore. With the creation of Jharkhand, the number of seats in the Lok Sabha from the state of Bihar came down from fifty six to forty. That makes West Bengal and Maharashtra more important (forty two and forty four respectively) in the national political scenario. Even in terms of Rajya Sabha, Bihar is no different from these states, and even if the state assembly elections are lost by the Bharatiya Janata Party in this state, they can make up for the Rajya Sabha numbers through smaller states that they seem set to sweep (Haryana, Himachal Pradesh, Jammu Kashmir and Uttarakhand) within a short span of time.

2. Bihar will decide Narendra Modi's fate
Bihar already decided his fate in 2014. It does not reflect the national mood, nor does it have any impact on how the government behaves. There is an aspirational voter class that will look beyond caste and community, as it has been exposed to much more through its migrant experiences, and their vote in Bihar will certainly hit Rashtriya Janata Dal- All India Congress Committee-Janata Dal (United) hyperbole on caste, injustice and so called economic growth (entirely state expense driven). To add to their woes, fringe players targeting the same voter base have come together under the Samajwadi Alliance umbrella, causing much nervousness to the alliance. Keeping these things in mind, the real decision of fate is for Nitish Kumar, whose very political survival is at stake, as explained earlier on this blog. Even R Jagannathan has observed similar points in his opinion piece on Firstpost. Even if he loses, Modi remains in the center, whereas Nitish and Lalu have to go into political wilderness together, and failure is always an orphan.

3. Bills have been stalled due to Bihar elections, especially land acquistion
The problem with this argument is that land acqusition acts are as much a state subject as a matter that the center can deliberate on. As I had written earlier, it might be a political masterstroke, as the BJP can create a contiguous corridor of rapid growth forcing other states to introspect. One of these states is Bihar, where private investment has not been headed because of the lack of infrastructure. Being a land locked or mineral starved state does not hold gel when one sees Punjab or Rajasthan move ahead in comparison.Neither are these states that have asked for largesses from the Center in the name of adhikaar - rather, they have created investor friendly zones. Punjab is moving forward despite land being many times more expensive than Bihar and agriculture being a priority sector for water resource allocation. So the man who has to answer the most is the man who ruled with an iron fist as he wanted people to believe - Nitish Kumar.

4. Lalu Yadav is an X factor
Not in the least. A cursory glance on Twitterati's reminisces of Lalu Yadav's jungle raaj in Bihar are indicative enough of the revulsion any mention of him staging a comeback generates in even those who sympathize with Nitish Kumar. On top of that, Nitish Kumar has been cut to size by Lalu's public shenanigans, and it has severely diminished his public image, especially after the acrimonious exchanges of the past between the two of them, including as recent as this. Adding to that his inability to contest due to his convicted status, and it is clear that this is one political horse past his prime. Shenanigans of his kind are not popular with people anymore, who do not want cartoons dictating the discourse in the state.

Hence, the media needs to realize just how lost it is on this particular election and its impact on the national scene. The hyperbole surrounding their shrill debates on the same need to be replaced with some sane coverage of important issues. The nation is not interested in Sheena Bora or Lalu's comeback, but it could do with asking why the aspirations of Bihar's youth continue to remain unaddressed.

The Economic Slowdown Needs Immediate Address

The Buck Stops With the Duo (Courtesy: Bloombergquint) The fracas in Maharashtra notwithstanding, things are at a critical juncture ...