Some food for thought
"Well, my deliberate opinion is - it's a jolly strange
world. "
—Arnold Bennett (English Novelist, 1867-1931)
Word for the day
Decoration (n)
A badge, medal, etc., conferred and worn as a mark of honor.
First thought this morning
For past five days, mainstream media in India is busy dissecting
the popular mandate for constitution of 17th Lok Sabha. A large part of the
analysis is naturally devoted to analyzing the region wise, caste wise and
religion wise vote share of the winning party, to find out what did actually
work for it. Besides, three issues have garnered bulk of the highlight.
(a) Number of members
with criminal records is perhaps the highest in this Lok Sabha.
(b) This Lok Sabha
has highest number of women representatives.
(c) The winners from
Bhopal and Rampur constituencies are widely known for extreme religious views
that may not necessarily be congruent with the principle of secularism as
enshrined in the Constitution of India.
Most commentators have severely criticized political parties for
selecting candidates for criminal antecedents. Many commentators have even
ridiculed the voters for electing the winners from Bhopal and Rampur.
In my view, this criticism is meaningless and redundant. In a
parliamentary democracy, the elected Parliament is quintessentially a
reflection of Society. The constitutions of the parliement mirrors the
contemporary constitution of the Society it represents.
The present Lok Sabha is an amalgam of criminals, reformers,
bigots, liberals nationalists globalists, illiterate, highly qualified, young
& old, suave urbanites and rustic tribals, et al. It is how it ought to be.
If some people want the Parliament to look any different, they
should make serious efforts to change the constitution of the Society first!
Chart of the day
Great expectations
The Monetary Policy Committee of RBI will meet on June3 to June
6 for second bi-monthly review of monetary policy for FY2020. The market
expectations, as reflected by the sharp fall in benchmark 10year yield, appears
set to a 25-50bps cut in the policy repo rate. Taking a clue from the
statements made after last policy meeting, some are even expecting RBI to break
away from tradition of changing rates in multiples of 25bps and make an odd cut
of 35bps.
The rate expectations are supported by downgrade in GDP growth
expectations for FY19, persistent low inflation, poor sales number for auto
sales, lowest manufacturing PMI data and core sector growth prints in almost
one year, and BJP's promise to accelerate investment materially. It is
pertinent to note that high real rates have been hurting economic growth for
some time now. RBI and government must be under tremendous pressure to
rationalize the policy stance to support the growth.
The expectations from RBI and/or new government include:
(a) Material rate cut
and faster transmission to support investment (both public and private) and
lower borrowing cost for the government to help fiscal management.
(b) Easing of
monetary supply by inducting sustainable liquidity, to enhance credit
availability, especially to farmers and MSME sector; and prevent the NBFC
crisis from worsening. CRR cut of 100bps, larger OMO for bonds as wells as USD
buying are some of the market expectations.
(c) Revised
framework for recapitalization and consolidation of public sector banks. RBI is
expected to announce adoption of the recommendations of Jalan Committee made
last year and release excess reserves for public sector bank recapitalization.
(d) Sharp increase in
public investment without compromising on fiscal discipline. RBI is expected to
facilitate the implementation of the BJP's promise of raising infrastructure
investment to 10% of GDP in next five years from the present 4% by structurally
lowering the borrowing cost.
(e) Measures to
attract larger foreign inflows that shall also help in strengthening forex
reserves to provide for a strong cushion against fall in exports due to
expected global slowdown and potential FPI selling. Higher FPI limits for
government bonds, larger USD swap window, NRI bonds rollover, etc are some of
the steps market is expecting.
(f) Pragmatic
resolution of power sector NPAs.
(g) Gradual
strengthening of the regulatory framework for control of NBFCs and HFCs,
without disrupting the status quo much.
(h) Evolving an
alternative mechanism for long term project financing, without crowding the
banking system for
More on this tomorrow.
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