Hey PM Modi, India’s Dollar Bond Can Ease Covid-19 Economic CrisisBloombergQuintOpinion
5 a.m. The phone rang, its tone so harsh at that ungodly hour. But I somehow stumbled awake and took the call from my buddy, Mr. NRI, from New York.
NRI (cheerfully): Good morning! I am so confused by your government’s stimulus package that I just had to call you. Modi says it’s Rs 20 lakh crore, but Chidambaram puts it at less than a tenth of that. Tell me, has Modi slogged it over the boundary for a big six, or just tamely holed out to mid-wicket?
It took me a while to figure out his analogy from the pre-Covid age when India was mad about an extinct game called cricket. Just how do I tell my friend that in the post-Covid digital era, we’re all hooked on to online Ludo.
I (still a bit groggy): Well, since you are talking cricket, lemme ask you – if a batswoman takes six dull singles in one over, and her captain proclaims grandly that ‘she’s scored a six’, what would you call that? Being truthful?
NRI (confused): It’s a “technical truth”, but in spirit, it’s a half-truth.
I: That, my friend, is what the Modi 20 Lakh Crore ‘stimulus’ package is! It’s mixed up guarantees of three lakh crores, back-stops, tax refunds, free foodgrain, guarantees to give guarantees of another one lakh crore, and cash transfers of a few thousand crores, all of which is somehow adding up to the magical number.
NRI (even more confused): So Chidambaram is right? The actual cash outlay is just a piffling amount?
I (after a pause): Well, the truth is never so simple in your erstwhile homeland, my friend. Because even though guarantees are not cash, they are often equal to cash in our muddled banking system. Let me explain. Since our bankers are sh*t scared to lend to companies, they just buy an extra four lakh crores of government securities, i.e., they just give the money right back to Modi. But now, since Modi has guaranteed that bankers will not lose, they’ve mustered the guts to pull out four lakh crores from G-Secs and give that cash to real businesses. Do you get it now? Even though Modi has not given cash directly to these small companies, he has given a guarantee so that the cash which was being given back to him is now going to be lent to factories and shops. So in that sense, he can claim, quite legitimately, that “I’ve given direct cash”, even though he hasn’t. These things happen only in India!
NRI (I couldn’t see him, but I am sure he was nodding): Okay okay, I get it. A six is a six, whether you score it in singles, or whack it out of the ground. But tell me, I also read that Modi sold $20 billion (Rs 1.5 lakh crore) of U.S. treasuries in April? Why did he do that?
I (not wanting to sound ill-informed): Nobody quite knows that, but the theory is that RBI bought rupee bonds with that money to keep interest rates low in India. Also sold extra dollars in the local market to stop the rupee from falling off a cliff.
NRI (now that he was on familiar territory): What nonsense is that? Why didn’t Modi just sell dollar bonds on NYSE? That would have gotten him a lower interest rate in India, and a harder rupee, without having to hawk his stock of U.S. treasuries. You bloody Indians are %*&@*#, what can I say…
Mercifully, the call snapped at that point. I put the phone on silent, and went back to sleep.
Flashback to Modi 2.0’s First Budget
They say a troubled mind ‘thinks’ through sleep. So I woke up a second time that morning with a throbbing question:
If you agree to pardon my over-use of cricketing metaphors, I shall repeat my words of joy written on July 6, 2019, a day after her maiden budget:
Unfortunately, her bold idea was swiftly killed by risk-averse advisors. It will be worth our while to re-examine each objection one-by-one:
Clearly then, if dollar bonds made sense in 2019, they make much greater sense in the post-Covid fightback. And when their babus (bureaucrats) object saying “but you abandoned this idea last year”, M/s Modi & Sitharaman should retort, a la John Maynard Keynes:
“When facts change, we change our minds. Now go do it.”
Raghav Bahl is the co-founder and chairman of Quintillion Media, including BloombergQuint. He is the author of three books, viz ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’, ‘Super Economies: America, India, China & The Future Of The World’, and ‘Super Century: What India Must Do to Rise by 2050’.