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Thinkpad: Summer Sweat

We are sweating in the heat; the LIC management is sweating ahead of the IPO; the central bank is sweating with inflation soaring.

Thinkpad: Summer Sweat

Happy weekend.

Happy if you are indoors and have power.

Not for the first time, and probably not for the last time, India is facing a power crisis of sorts. As temperatures soar and fans and air conditioners are turned on full blast, power demand has surged. Supply hasn't kept up. How bad is the situation where you are? Pallavi Nahata has the state-wise analysis.

There are a bunch of reasons it seems. Some states have fallen behind on payments and haven't stocked enough coal. There is some disruption in local supplies due to untimely rains. Overseas prices are soaring, so imports are tough. And it doesn't help that we are in the midst of a heatwave.

The government has stepped into action. So perhaps the situation will improve.

If you and I are sweating literally, the government and top brass at Life Insurance Corporation seem to be sweating it out metaphorically.

The long-awaited IPO opens next week and you can bring yourself up to speed with all the details here.

The question that has lingered in the air all week is why LIC is listing amid tepid market conditions at valuations much lower than what they were hoping to command just a few weeks ago. Why the rush? Sajeet Manghat put that question to the LIC management, which said the decision to list, at what is not the best of times, is a sign of strength. You can catch up on that interview here.

There is another way to look at this. A more realistic way. Last year, when the markets were soaring, the government managed to do precious little in terms of divestment. Perhaps it realises that market timing is not what true divestment is about. Perhaps it realises it's just not very good at it either. Also with government finances looking better than they have in recent times, perhaps the desperation to plug a budget hole no longer exists. After a long, complex process of getting LIC IPO-ready, maybe the government just wanted to get done with it. Will the modest valuations help improve demand for the issue? We'll find out soon enough.

There seems to be some sweating going on at the central bank too.

With inflation rising, the discourse has shifted.

In its resurrected annual currency and finance report, with a theme of 'Revive and Reconstruct', the RBI spoke of India being able to achieve a growth rate of 6.5-8.5% in a sustainable manner over the medium term. It acknowledged the scars of the pandemic and said that it would take over a decade to catch up to the pre-pandemic trend growth. It listed out a set of reforms it feels are needed at this stage, in particular factor market reforms.

The more immediately substantive part of the report was not in the headline. The RBI, in the clearest words so far, called for normalising of pandemic era policies. It said that a surplus liquidity of more than a specific level is inflation. At present liquidity is well in excess. It said that beyond a point, fiscal multipliers of government spending diminish and that the downside of wider deficits and higher government debt, by way of higher term premia and interest rates, is detrimental to growth. You can read more here.

Not to say the RBI will necessarily act on these words. But the mood, if there was any lingering doubt after the last monetary policy review, has changed.

Stay cool. Till next week.

PS: We aren't bothering bringing up Elon Musk, Twitter and all the hilarious (and some thoughtful) tweet storms that followed because we assume that, like us, you've spent way too much time on that already. It's been a riot!