Thinkpad: Ideas—Old, New & Recycled

Happy Sunday.

We got a bunch of interesting ideas to think about this week—some old, some new and others recycled.

Take the government’s “asset monetisation plan.” The idea is to unlock about Rs 6 lakh crore in financing via this and channel it into fresh greenfield projects.

The details will tell you that this isn’t so much monetisation. Perhaps the government didn’t think it had the political capital to push through large scale asset sales at this stage. And so it is essentially planning to bring in concessionaires for various projects across sectors.

Most veterans saw this as recycling of the public-private partnerships of previous years. Nothing wrong with that, as long as it yields something useful.

Vinayak Chatterjee of Feedback Infra called it "PPP By The Side-Door" and cautioned that investor confidence in this format is low. And so the government must take urgent steps to completely revamp the PPP environment and ecosystem, he said in this piece.

Rajiv Lall, who headed the erstwhile IDFC Ltd., had a similar take. It's PPP "Turned On Its Head," he wrote. He suggested revamping concessionaire agreements, setting clear quality benchmarks for assets handed over and a dispute resolution mechanism to get the plan moving.

Both pointed to the report of the Vijay Kelkar Committee report on PPPs from 2015 as a good place to start looking for suggestions.

Ah, those old committee reports! Keep ém coming; you never know when you'll need them.

There have been some interesting ideas out in the world of new (old) finance as well.

One which created considerable debate (at least in the virtual world of Twitter) was Google Pay's tie-up to provide third-party fixed deposit services. Google Pay is essentially providing an interface, even as the deposits continue to be held by the banks they tie-up with.

The idea is that if you can reduce friction in opening, closing, moving fixed deposits, you will see more frequent flow of this pool of money between banks. In particular, smaller, newer lenders will be able to wean-away depositors from their legacy banks, perhaps by offering higher rates.

Will there be a large behavioural shift if you can move money around with a couple of clicks?

Thinkpad is skeptical. While some depositors may move this pool of funds around to earn more interest, most use fixed deposits as the emergency, easily liquidated corpus. Book it, forget it, till you need it.

We could be wrong though. As investor Anupam Gupta said in a recent conversation on another similar subject, UI/UX is what matters most to this generation.

The debate over buy-now-pay-later or BNPL is similar. Will you buy something just because there is easy financing available? Maybe you will. But hopefully you will remember that it is credit (and it is!). Eventually you have to pay it.

BNPL, as Stephen Mihm, writes is an "innovation that is 200 years old". "This may seem cutting edge to the youngsters, but it’s nothing but a reboot of a credit system their great-great grandparents knew and loved: the installment plan."

On the matter of innovation in finance, a Twitter user, usefully reminded us of John Kenneth Galbraith’s words. “...financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design, one that owes its distinctive character to the aforementioned brevity of the financial memory.”

Before Thinkpad is dubbed as old, crotchety and always skeptical, here's an idea that did sound new and useful.

The Securities and Exchange Board of India, this week, issued a circular on monitoring of bond covenants and securities using blockchain or distributed ledger technology. This sounds like much-needed innovation.

Debt fund managers and banks are often heard complaining about the quality of monitoring by debenture trustees. The issue is particularly relevant for covered bonds which are picking up in India. Sebi's plan can help ease some of these concerns if implemented well.

Before we sign off, as discussed extensively in Thinkpad last week, the Fed taper is approaching. Chair Jerome Powell has signaled that asset purchases could slow later this year. The market, so far, is seeing it as a "dovish taper". A taper without the tantrum, as this article puts it.

Till next week.