An outro for 2020—The varying notes: A look at the big things economic in the year gone by, drawing from music

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December 31, 2020 5:30 AM

‘Top of the charts’ is the Delhi rondo, with farmers gathered to protest against the farm Bills. Everyone is arguing with everyone else on this issue, and a fairly pragmatic policy put up by the government has now been opposed by nearly everyone.

The year was not without its top-10 compositions in the economic field.The year was not without its top-10 compositions in the economic field.

The year 2020 will be remembered for the pandemic; it has been a race to survive so far. For India, common parlance has changed post March 24, after the Nocturne lockdown announcement. The grim situation was explained to the masses, and the lockdown was welcomed by the entire nation composing the New Delhi concerto (much like Bach’s Brandenburg concertos, sans the noise) by the collective banging of utensils and, later, lighting the traditional diya.

The year was not without its top-10 compositions in the economic field.

At number 10 is the dynamic allegro of economic forecasts. Growth rate projections started from a low positive in April to a low negative in June, and went through a moderate negative in July to a high negative by September (the peak), and then to a moderate negative in December. Whether it will turn positive at the end of the year is a question everyone is asking.

Number 9 was the lilt from the government allowing delivery of liquor to our homes. This happened as the states’ coffers ran dry and some of them made provisions to deliver liquor to homes, though it was ‘not on the house’ as the beverages were taxed multiple times over to get the coins clinking.

RBI’s octave was 8th on the charts. After lowering interest rates repeatedly, the central bank opted for a liquidity deluge. It was the atmanirbhar variety of QE where the unique LTROs were brought in to complement the Operation Twist on the monetary floor as funds kept flowing to banks. The result was that there were no borrowers, and the money went back to RBI in the reverse repo auctions. Finally, the QE was rolled back, and banks were given the option of repaying these LTROs, which they did with alacrity.

At number 7 was the central bank andante where the MPC finally said, without uttering the words, that it will target not just inflation but also growth. The famous words of the ECB, ‘do whatever it takes’, is now a battle cry, and the MPC made it clear that even if inflation is beyond 6%, growth will dominate its list of priorities and the stance will be accommodative. It is not surprising that the market, left with little to talk about, is now surmising that the terms of reference of the MPC will change. One forgets that this was legislative action on inflation-targeting and not a Mint Street decision.

The serenade on oil prices is 6th on the billboard. The futures prices in the US went to the negative region as there was no storage capacity. Prices recovered after the virus threat abated and went back to the $40-50 region. But, the government took advantage and went ahead and kept increasing taxes on petrol and diesel, with the former now crossing the `90 mark. Given that the price including dealer margins is around Rs 30-31/litre, the balance goes to the government as our tank fills up. No wonder these commodities will never come under GST.

The GST requiem, at number 5, was the rather acrimonious battle between the Centre and non-NDA states over compensation. The GST terms of engagement were that any loss suffered by states, which had been assured of compensation at the rate of 14% growth per annum, would come from the cess. But what happens when GST collections of the Centre and states crash and the cess fund has dried up? Just like Hamlet’s conundrum, it was a case of who would borrow the funds.

Technically, the Centre was right in insisting initially on not borrowing because the promise was to pay from the fund. If the well went dry, it could be given only from future flows. Finally, the Centre agreed to borrow and lend to states, and the latter would pay interest and service the loan from future cess flows. It was a case of realpolitik triumphing over reason.

Dalal Street’s aria is number 4—the Sensex zoomed, like the use of Zoom for meetings across the country. Excited brokers were on TV saying that they knew all the time that the country was out of the dumps and stock prices ratified this feeling. FPI funds flowed in and mutual funds put in money (where else could deposit holders go with taxable returns of 5-5.5%). Corporate profits got lifted in Q2 as sales plummeted, but that was because companies cut back costs, mainly in the staff domain, to keep shareholders and markets satisfied. Now, 50,000 is not far off (perhaps by March), and the markets are already looking at even 60,000 being on the radar by Diwali next year. Turning poet Shelley’s immortal line over, “If winter comes, can spring be far behind?”

At the third place was the RBI paper on allowing corporates to also apply for banking licence, which brought out the soprano in unison. Wasn’t this already there in their books? But, the discussion paper, which was not a decision, but an opinion-seeking note, stirred outrage and the singular voice was that this should not be allowed as there was a conflict of interest and that if business houses came in, they would channel the funds to themselves. Sounds absurd, but there are a lot of takers for this line of thought as several pages in the newspapers and several hour of airtime on TV have been dedicated to debating this issue. Such a statement sounds odd, as though the regulator does not have rules in place for screening the same and every fly-by-night operator would be allowed to set up their bank. If corporates are all so bad, why are banks lending to them? Clearly, there was bizarre logic at play here, and that is why it is up on the list.

The second on the billboard was the fugue that accompanied the way in which policies were announced. The term ‘atmanirbhar’ spurred patriotism in the month of May even as migrants struggled to get home. There were a series of policies that went through five comprehensive power-point presentations on five days, with each one having a refresher on the previous day/days policies. The close-to-Rs 20-lakh-crore relief package was topped up in October and November with the second and third rounds, to touch Rs 30 lakh crore. It was literally like the epic series of Star Wars 1, 2 and 3.

‘Top of the charts’ is the Delhi rondo, with farmers gathered to protest against the farm Bills. Everyone is arguing with everyone else on this issue, and a fairly pragmatic policy put up by the government has now been opposed by nearly everyone. Did we not say that the mandi system was inefficient and added to cost? Did we not feel that farmers should have a right to sell wherever they want? Did we not always conclude that the arhatiyas are exploitative? Did we not agree that contract farming is an alternative that one can choose to commercialise agriculture? That is what the government has proposed as an alternative and provided farmers a choice. However, the plank is different now as it has been supposed that the government will do away with MSP and the same corporates (who are going to storm the banking system and fund themselves) will now swallow farmers. There is clearly no room for logical arguments when conjecture and speculation are taken to be the dogmatic truth.

Happy New Year!

The author is chief economist, CARE Ratings, and the author of ‘Hits & Misses: The Indian Banking Story’. Views are personal

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