Thinkpad: Backward, Forward And In Suspended Animation

Happy Sunday.

We would like to start this week’s Thinkpad with a mea culpa. We closed off last week’s edition promising you an action-packed week ahead. The appointment of a new Monetary Policy Committee and a meeting of the reconstituted panel. We saw little risk in flagging off those upcoming events. After all, except in emergencies, MPC/RBI meetings are like clockwork. Some of us even time our holidays around them – yes, really!

But we were wrong. The committee wasn’t appointed. The meeting didn’t happen. Guess the government just didn’t get around to it or something. For now, the MPC is in suspended animation.

Ok, we’ll drop the sarcasm but the delay in appointing one of India’s highest policy making bodies is poor form. It sends a signal on the seriousness we attach to its functioning. It also extends a pattern of delaying important appointments. The SEBI chief’s extension came at the eleventh hour after rounds of interviews had reportedly been held; we are still waiting for one of four RBI deputy governors to be appointed; and public sector banks often go headless for months. It’s difficult to understand why senior appointments can’t be given due and in-time attention.

What we did get, towards the end of the week, is some sense of the government’s position on the waiver of compound interest.

The government’s affidavit seems to suggest that it will offer relief to all borrowers with loan amounts below Rs 2 crore in specified categories, which range from MSME loans to home loans and credit cards. While clarity is awaited, there is debate on whether borrowers who didn’t avail of the moratorium will get relief and how.

One way to look at it is that the government is effectively providing a back-dated subsidy to all borrowers below a certain threshold. The relief provided is equal but the impact of the relief differs. Those who took the moratorium will see compound interest set-off, those who didn’t will see a future payment set-off. But we acknowledge that there are many other justifiable ways of looking at it. One being that the relief should benefit those who needed it most. Let’s wait and see how this plays out.

But this much is clear – a new class of waivers is here. And that’s a step backward in our attempt to improve credit discipline.

We’ll close off on a more hopeful note.

Economic data coming in for September shows the economy is moving forward. A gauge of the manufacturing sector and auto sales improved, perhaps reflecting pent-up demand along with restocking. GST collections looked stronger in the latest reading. Exports actually grew 5% over a year ago.

We’re nowhere near being out of the woods yet. Whether the rebound sustains and what India’s medium-term growth outlook will look like remains uncertain. Ruchir Sharma, for one, thinks India would be lucky if it can maintain an average growth rate of 5%.

Those concerns notwithstanding, the uptick in high-frequency data is certainly encouraging.

Enjoy what’s left of your weekend.