When one looks back at 2016, there are stories that get etched in the mind, and just like the Billboard chart of top 10, there can be one drawn up for major economic upheavals in the last almost 365 days. The year was full of surprises, and it was not just a case of Bob Dylan getting the Nobel Prize in Literature. If words like “Mama, wipe the blood off of my face, I can’t see through it anymore, I need someone to talk to in a new hiding place, Feel like I’m looking at heaven’s door” are literature, then Donald Trump is also pro-free trade.
The countdown begins from 10, where the Yellen-Draghi combination kept the markets guessing almost by habit—the former for increasing rates and the latter to continue doing everything to ensure liquidity is there. We know both the objectives will be met, but then the market needs something to drive them forward, or rather back. Right?
At the ninth spot was the eternal flame of GST which almost appeared to be seeing the cliched light of the day. The interesting part of any crucial Bill in India is that the Opposition opposes it vociferously when on the other side, but fights hard for it when in power. Nobody knew what irked the Opposition, but the Bill got passed and the rates have been agreed on. It is a typical Indian compromise with several exemptions and an array of rates that makes everyone happy. But much like the ‘bad penny’, it surely will come back to haunt us next year as states feel taking in GST and demonetisation at the same time is stressful.
Eighth is the phenomenon of inflation which has come down after almost three years. With the CPI inflation being at less than 5%, everyone is taking credit for it. The government says it has brought inflation down, while RBI feels vindicated that its stance has helped to break the back of inflation. But how exactly was this accomplished when inflation was driven by bad weather and a poor harvest? When the crop fails, the weather is responsible for inflation. But when the weather is good and the crop thrives and brings down price, all of us take credit for it. Not bad for a deal.
Seven, the rockstar Raghuram Rajan had his share of controversy whether or not he wanted it. It was almost assumed that he would get an extension after a three-year term, and when that did not happen, the media was abuzz with its own speculation, which is always the case with RBI governors. Parallels are drawn to independent governors and not-so independent governors. Somehow, we want excitement whenever it is succession in central banks. We never ask ourselves whether we question the big owners and CEOs who run companies in which we work. We are always complaint, but we want RBI to work independently from the government? A contradiction here, really.
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The sixth position goes to the investment activity. We have had several measures taken to revive investment. It started with clearing projects and then all those fancy slogans which energised the markets for a day after their announcement—Swachh Bharat, Make-in-India, Start-up India, Digital India and Smart Cities etc. All of them germinated several articles and discussions, besides proliferating conferences and seminars involving lunches and dinners, to show how the economy would be galvanised. Everybody who was ‘a somebody’ had something powerful to say. But the investment rate has been falling continuously till September and does not look likely to recover any time soon. Where are those investments dude?
Fifth, banking sector continued to blow hot and cold on its own performance. PSBs said last year that the NPA issue would be behind all of us and confined to the history books by March 2016. But their numbers and those for provisioning and profits are getting more difficult to comprehend by the day, and the date has been pushed forward to March 2017. The Bankruptcy Code is to be the magic wand now. But didn’t we have all DRTs, ARCILs and their like before?
At the fourth position is the most critical variable of interest rates. We all want rates to come down to spur growth at a time when no one wants to invest not because cost is high but there is little demand. The monetary policy can now be called the interest rate policy as it has been reduced to a single variable policy—or maybe three if we add CRR and SLR. All the experts or those with such pretensions are always arguing on business channels that RBI should lower rates (as if the central bank is not aware of the same). Such reductions have not led to any increase in credit and the tyranny of the status quo continues.
The third position goes to the Brexit drama. No one expected it and once people voted in favour of ‘exit’, the formula of 51% was questioned. Then it was claimed the young and old had different views, and several people did not understand what they were voting for. But now there is a possibility of an IT-exit (Italy) and Fr-exit (France). It surely looks as if the idea is compelling. We need to see how these ideas develop in 2017.
At two is the triumph of Trump, which could have been in the first slot. Everyone said Trump had no chance. The Economist argued that he was a bad choice. The markets got jittery as the voting day advanced, and this spectre took the indices down and the dollar weakened. But once he won, it was an about turn. More spending and lower taxes helps the US economy, right, which will strengthen the dollar, which is what the Dow Jones showed.
The mother of all events was the grand design of demonetisation. Or rather, what has been called remonetisation, as old notes get replaced with the new, even though holding money becomes easier with the R2,000 note making an appearance. The coloured notes add glamour to the monetary system and the designers need special mention of bringing in variety within the same denomination which is legal tender. The mention of ‘Swachh Bharat’ on the notes smacks of irony—it is now a clean India, you see. We learnt a lot about banking as it was less known that ATMs need to be recalibrated and that printing currency requires paper, ink and time.
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However, we have to think big, and the inconvenience caused is quite small as we have now gone in for a transformational change where everyone will be using mobile phones to transact even in villages where there is no electricity. This will be efficient and make all our lives better.
But wasn’t the scheme to target black money? Yes, in the next round after December 31, the taxman will be in action and those who have something to hide should need to worry.
Otherwise, don’t worry, be happy; and have a happy new year.
The author is chief economist, CARE Ratings. Views are personal