Thinkpad: The Budget Wordle

Happy Sunday.

Hope you’ve finished your wordle for the day. How many of you are now starting your day with Wordle? Thinkpad certainly is!

What if we had to create a word game for the Union Budget? Five important words to watch for in the budget. We’ll give you a clue and link some helpful articles. You guess the words. A variation on Wordle, yes.

Clue 1 (two words): Economists love talking about this. Most others don't care. But it has an indirect bearing on everything — from jobs to consumption to interest rates. What is it?

Clue 2: India has complained about the lack of this for many years now. Private companies have shunned it so the government must step in.

Clue 3: The pandemic has left many people jobless, incomes have fallen. In times like these, government has to spend more on this part of the budget.

Clue 4: It is an important lifeline in times of stress but there is much concern about inadequate funding. What is it?

Clue 5 (two words): The only real reason you and I should really care about the budget.

That was easy enough! And if you want to catch up on reading ahead of the budget, you can go across to BloombergQuint’s budget coverage page. We’ll have you covered on budget day as well.

Onto other matters. The U.S. Federal Reserve met this week with Chair Jay Powell giving a clear signal for a March rate hike. Powell’s message was that the U.S. economy is strong, labour markets are strong and that the central bank needs to move ahead decisively to curb inflation. The Fed is now set to kick-off the most aggressive tightening in a decade.

Markets swooned. ‘You’re on your own’, was the message many traders seemed to take away.

A number of central banks will move away from extraordinary policies this year, was the message from the IMF’s Gita Gopinath, who spoke to BloombergQuint this week after the release of the World Economic Outlook.

Gopinath sees a complex mix of standard economic and non-standard pandemic-related factors driving inflation. The IMF does expect inflation to start easing off later this year and isn’t seeing risk of a wage price spiral or de-anchored inflation expectations just yet in the U.S. Even so, inflation will be high enough to prompt central bank action. You can read or watch that conversation here.

Back home in India, Gopinath felt that monetary policy accommodation could continue for some more time given the slack in the economy. But the central bank should stay watchful, was her view.

Interestingly, in a speech on Friday, RBI Deputy Governor Michael Patra defended the central bank’s stance. “India held its ground and is among a few countries that have retained an accommodative monetary policy, despite some views that we have fallen behind the curve. Only time will tell whether or not India has got it right,” said Patra, adding that “history will judge the role of the RBI in ameliorating the impact of Covid-19.”

The February meeting of India's monetary policy committee promises to be an interesting one.

Two other noteworthy events this week. The resolution plan for PMC Bank has been finalised. It’s been a unique and challenge process. At the end of it, 30,000 depositors with deposits of Rs 6,400 crore will have to wait between one and 10 years to get their money back. Painful? Yes. But also a new, and perhaps more mature, template to deal with bank failures. Of course, no one has had the courage to try it with scheduled commercial banks yet, perhaps wisely so.

And finally, the event of the week was undoubtedly the closure of the Air India privatisation. That’s one expense off the government's budget. Here’s another (temporary) relief — for the first time in a decade, the government will not need to set aside funds to recapitalise public sector banks, according to ICRA.

A busy week beckons. Enjoy the weekend.

PS: The answers to the Budget Wordle: 1) Fiscal Deficit, 2) Capex, 3) Subsidies, 4) MGNREGA, 5) Income Tax.