Thinkpad: FY21—Annus Horribilis.
The financial year will close in just a few days. We state the painfully obvious when we say it will be one for the history books. What a _____ year it’s been! We’ll leave to you fill in your choicest expletives or adjectives as you see fit.
Thinkpad thought it would be useful to recall some of what stood out. We’ll keep it snappy so you don’t have to re-live the horror-that-was.
- The government probably closed the year with a fiscal deficit lower than the migraine-inducing 9.5% of GDP announced in the budget. It borrowed Rs 13.7 lakh crore, 75% higher than what it had projected when the financial year started. For such a large jump, the borrowing programme went through remarkably smoothly except the odd bond market tantrum. No time to rest though. There is another Rs 12 lakh crore in debt to sell in the year ahead.
- States, whose painfully-difficult-to-grasp budgets are still rolling in, will likely close the year with a combined fiscal deficit of 4-4.5% at least on paper. They managed to borrow somewhere close to Rs 7.8 lakh crore this fiscal year, again, without any serious blowout.
- The Reserve Bank of India stayed within its “Lakshman Rekha” by avoiding direct monetisation of government borrowings. It did everything else it could to support borrowings from both the central and state governments. The central bank’s balance sheet, though, will end the year pushing multi-year limits at close to 30% of GDP.
- In its capacity as banking regulator, the RBI may have pushed puritanical limit but appears to have come away with the right results. A repayment moratorium followed by a one-time restructuring has kept bank balance sheets sane. Will the true asset quality picture that emerges over the next year be different? We’ve learnt to never say ‘the worst is over’ when it comes to Indian banking so we’ll use the time-tested cop-out and say ‘let’s wait-and-watch’.
- The Sensex has surged 66% over the year. The 10-year bond yield went from 6.50% at the start of the year to a low of 5.75% and is now back on the rise. Don’t fret yet but some are forecasting a 7% on the 10-year bond in the coming year.
- The rupee floated peacefully through the year with the central bank paddling (read: buying dollars) furiously underneath. In the process, India built up a fatter forex reserve cushion of $582 billion dollars.
- Corporate balance sheets, at least large ones, fared better than anyone expected. What stands out is the fact that the indebtedness of large corporations actually eased amid the pandemic. RBI data shows that interest coverage ratio of manufacturing companies jumped sharply from 4.6 times in the July-September quarter to 6.6 times in the October-December period. So much so that some banks have been found grumbling about pre-payment of bank loans lately.
- Of course, by deduction, if the economy shrunk but large corporates did well, then some segment of the economy was hurting badly. Small enterprises, informal sector units probably had the worst year of all. Hope they see better times ahead.
- As has been discussed earlier in the year, that divide was stark across households as well. At the risk of generalisation, the wealthy grew wealthier, the poor may have taken it on the chin.
But the year is over. Here’s to better times. And Happy Holi! Hope you get to close the financial year with some cheer and chole bhature.