• Invest
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Currency
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Product Suite
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Equity Screeners
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    SWP Calculator
    CAGR Calculator
    Simple Interest Calculator
    ELSS Calculator
    Step up SIP Calculator
    All Calculators
    Product Suite
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Stocks
    Market Movers
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Stocks
    Indices
    Mutual Funds
    IPO
  • Learn
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Quarterly Results
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Commodities
    Currency
    Futures & Options
    Derivatives
    Margin Trading
    Events
    Budget 2024
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2024
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Fund Expert
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement
​

Rollback Time

  •  3m
  • 0•
  • 21 Apr 2023

Long discarded policies like deficit monetisation, loan restructuring, higher tariffs and import licensing had not yielded great results even the first time around, points out T N Ninan

The economy is getting painted into a corner. Fiscal policy is boxed in by alarming numbers: Expenditure in the June quarter was 5.4 times revenue! Monetary policy has no room for manoeuvre, as seen on Thursday, because the policy rates are already negative in real (ie, inflation-adjusted) terms. While the government and the Reserve Bank find their hands tied, the resources available to the rest of the economy are constrained as gross domestic product (GDP) is expected to shrink by 5 per cent or more. Corporate profits as reported have fallen by about 30 per cent this past quarter, and households are coping with job losses. So the macroeconomic ratios of savings and investment that underpin growth will dip. And the government will soak up a higher proportion of the available savings.

These problems are not about to disappear into green shoots, but the June quarter’s grim numbers mark the trough. A recovery will come, but from what levels? Government tax revenues, for instance, are down by a half in the June quarter. Even if they double in the September quarter, the year’s fiscal deficit target of just under Rs 8 trillion will have been massively exceeded midway through the year. Even with generous assumptions about further revenue recovery in the second half of the year, the deficit could end up exceeding the 6.4 per cent of GDP that was the high (or perhaps low) watermark set in 2009-10. In anticipation, the government has already upped the year’s borrowing requirement by 50 per cent, to Rs 12 trillion. It may need more than that, and bind monetary policy even more as the RBI plays its role of government banker.

And so we come to policy rollbacks. Start with the assumption that a massive fiscal stimulus is the only answer, as it was in the wake of the global financial crisis when the fiscal deficit jumped from 2.5 per cent of GDP to 6.4 per cent. That fired up a smart recovery; some would say too smart. The difference between then and now is that the deficit and public debt were smaller then, so there was room for an outsize fiscal stimulus and expanded public borrowing. This time the numbers are more stretched, so the government may have to resort, eventually and however unwillingly, to a policy rollback, and revive the automatic monetisation of the deficit. In layman’s language that means printing money, abandoned as policy and practice in the 1990s.

Meanwhile, banks are headed for another dunking in a sea of bad debt and will need additional capital of Rs 4 trillion, judging by Reserve Bank estimates of potential bad loans. Since that money can’t be found, and more companies risk going under, the only way to keep the financial and corporate sectors functional through a fresh phase of the twin balance sheet problem is to roll back policy on another front. This the RBI has just done by reviving the discarded tactic of kicking the can down the road, via loan restructuring.

If macroeconomic management is constrained enough to force rollbacks, what of longer-term policy? The government’s moves so far have been to ease labour policy (via the states), invite foreign investment in new sectors (like coal mining), encourage import substitution, and improve the transport infrastructure. These will make a difference, though all of it not necessarily for the better. The pushback against imports from China (which account for a significant chunk of the non-oil deficit in merchandise trade) is understandable, but the broader lack of conviction that open trade can benefit India has led to the embrace of long-discarded Congress policy by the government, otherwise keen to shed all remnants of Congressism. So we have two more policy rollbacks — to higher tariffs and, after three decades, the re-birth of import licensing.

The discarded policies now revived did not yield great results the first time around. This government thinks it can do better. Good luck to it, but in the meantime it seems only divine intervention can stop the Covid juggernaut that started and sustains the havoc. If only religion could serve as something more than a government’s opium for the people.

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Read Full Article >
Enjoy Free Demat Account Opening
+91 -

personImage
Enjoy Free Demat Account Opening
+91 -