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Thinkpad: Best-Laid Plans

Best-laid plans o' mice an' men. From farm laws to Paytm's IPO and cryptocurrencies, things that haven't gone to plan.

<div class="paragraphs"><p>Markings and formulas are displayed on a whiteboard at Capstone Games' headquarters in Beijing, China, on Wednesday, Dec. 12, 2018.</p></div>
Markings and formulas are displayed on a whiteboard at Capstone Games' headquarters in Beijing, China, on Wednesday, Dec. 12, 2018.

Happy Sunday.

You know what they say about best-laid plans o' mice an' men. There was a little bit of that going on in different ways this week.

On Friday, on the day of Guru Nanak Jayanti, the Prime Minister announced that the contentious farm laws will be repealed. The implementation of these had been stayed by the Supreme Court and protests around them had continued. Besides, elections are coming in two large states—Punjab and Uttar Pradesh. Whatever the calculus behind the decision, the attempt to bring long-pending reform to agricultural sector now stands delayed. Those who understand the sector best had argued that there was good in the farm laws. But the process, which was widely criticised for lack of discussion and debate, has scrubbed away any good that may have come of the attempt. Ah well.

That's not the only thing that went awry this week.

India's largest IPO till date—One 97 Communications or Paytm—crashed and burned on day one. The stock closed some 27% lower, saved only by the circuit filter. Just ahead of listing day, Macquarie Research put an underperform rating on the stock, pegging its value at 40% below the issue price. The stock followed down that path as it listed. Macquarie, like many others, questioned the business model. It said that Paytm has its finger in too many pies and competition will drive down unit economics. Founder Vijay Shekhar Sharma put on a brave face, saying he isn't worried about the stock and the brokerage doesn't understand the company's business model. But as our friends in the markets may say, Bhav Bhagwan Che.

Incidentally, hours after trading closed on the first day of the Paytm IPO, the Reserve Bank of India released a new set of guidelines which may marginally work in Paytm's favor.

The regulator, which has spent months trying to map the digital lending landscape, is essentially trying to restrict lending largely to regulated entities. It wants to set up a nodal body to verify lending apps and even suggests the government consider a ‘Banning of Unregulated Lending Activities Act’. Doubt that will be an easy one to push through. You can read the details here.

More specifically, the RBI put a stop to a recently popularised structure of lending where NBFCs tied up with loan service providers using a 'first loss default guarantee'. A number of payment apps were pushing credit products through their network by doing this. Paytm says it doesn’t use this structure. Essentially, under such arrangements, the loan service provider takes on a part of the lending risk.

There are other stickier issues that the RBI wants addressed, like how to tackle (old) new products like Buy-Now-Pay-Later and entities like neo-banks and digital banks.

It would be fair to say that the regulator, over the next many years, will have to devote considerable time and mind space to staying on top of the world of digital finance. Hope it is up to the task.

This week also saw Reserve Bank governor Shaktikanta Das reiterate his concerns around cryptocurrencies. A usually measured Das said: "When the central bank says it is concerned about macroeconomic and financial stability risks emerging from cryptocurrencies, there are serious issues here." With such strong opposition from a central bank chief that the government clearly trusts, will it actually go ahead and grant regulatory sanction to cryptocurrencies?

For those wanting to understand some of these macro concerns, this piece from Sajjid Chinoy, published in the Indian Express, is worth a read.

We'll close off with two stories we thought you may want to read.

With inflation chatter everywhere, BQ's Pallavi Nahata decided to take a trip down to Chandni Chowk to get a street-level view of the economy. Read her takeaways on what a stroll down a busy marketplace tells us about the economy.

For interest rate watchers, this one will raise eyebrows. Ahead of crucial monetary policy review, it seems Reliance Industries, which has among the largest and most sophisticated treasuries around, has been buying five-year central government and state bonds in large volumes. Why? Fodder for thought.

Till next week.