On April 17, 2020, Governor of Reserve Bank of India (RBI) Shaktikanta Das, addressed a much-hyped media gathering. Indian stock markets, hopeful of “additional stimulus package,” led to a modest spike in the market indices. In his statement, Das claims, “Indian economy was to grow at 1.7% of its GDP” and that in the following year, there would be a “sharp increase.”
In a world where politicians do not understand economics and economists do not understand politics, Indian bankers are a bit worse. Most bankers in India have not even the slightest idea of economics or politics. Das’s only key take way was the announcement of a reduction in Repo Rate by 50 basis points (BPS). RBI Governor also asked banks to “stall” payment of dividends to the shareholders to “preserve cash.” There were also nominal directives to relook at the Non-Performing Assets (NPAs) and its resolution time.
The reason for RBIs existence is to ensure banks are regulated. It is not a guardian angel for banks or bankers, but the banking system – at large. It has a specific power to mitigate risks to the economy, but it is pointless for RBI governor to come forth media only to give false projections while offering zilch. I bet 99% of the general populace and 90% of media in India have literally no clue what Das has said or what his directives will imply. How can an economy grow at 1.7% when exports take a hit, jobs are gone, and borrowing becoming increasingly difficult? And how can there be a “sharp growth next year” when the very banks are in sinking with rising NPAs and losing their interest to lend? Optimism is not possible without concrete actions in the right direction. And since RBI is an independent regulator, we need a statesman as a Finance Minister to strong-arm RBI if need be.
Meanwhile, lack of sensible opponents in India and the US will not just guarantee the return of Donald J. Trump as the President of the United States for the second term but also elevate the position of Narendra Modi as the 2nd most influential world leader.
Like it or not, the Chinese Communist Party will fight no more for global domination but their very survival. A weakened China will give Modi a fighting chance to not just level the playing field but make India the new global manufacturing hub. Besides, should Modi-Trump combine, put their full weight behind the Taiwan regime of the Republic of China, we could see a pure democratic China in the offing in the next five years. The tectonic shift in global economics and diplomacy could as well bring a sea of good news for global middle-class and poor since money will begin to move away, albeit steadily, from the mega-rich 1%. The trick for both US and India will be to ensure they have a sound banking system in place. Therefore, to protect the strategic economic apparatus of the nation, PM Modi must act on the following 7 points immediately:
1. Ensure farmers are tilling their lands
According to the meteorological survey, India is to receive “normal” monsoon this year. It is good news, but it won’t be for long if our farmers fail to tend to their fields. Farmers will require seeds, manure, and fertilizers providing, which must be a priority, along with a priority check of the health of farmers tending their fields; this is crucial to ensure food security. If India cannot feed its population, no country can. If we are to import food, that will imply a heavy blow on our economy.
2. Appoint Piyush Goyal as the finance minister
In politics, there is a massive difference between a good person and a good politician. There can be no doubt that Nirmala Seetharaman is a well-intentioned politician with her heart in a good place. But we are in extraordinary times facing extraordinary challenges to address which we will need extraordinary leadership. Piyush Goyal, currently the cabinet minister for railways, has been the most competent and brilliantly performing minister in the Modi’s cabinet. A successful Chartered Accountant, his understanding of politics and economics is much farsighted. His ability to run power and railway ministries show his ability to work under stress. Modi must bring in Goyal as the Finance Minister also because he would be better able to bring RBI in line.
3. Force RBI to institute a 6-month moratorium period on EMIs and waive the interests
In his first media address, the RBI governor had offered only three months of moratorium along without relaxing the interests on loans. That is barely a relief to the middle-class who are reeling under financial stress. The moratorium must extend to a period of six months with relaxing of interests.
4. Right-size the banks and making digital banking most robust
The RBI’s approach currently is to ensure that the banks and bankers are protected. It is natural since every RBI official has served in a nationalized bank and continues to have their relatives and friends working there. There is a certain level of nepotism, which makes it challenging to get them to toe the line. Banks have too many staff. On April 1, 2020, ten public sector banks merge into four banks. These four banks will have multiple branches in a town: or even the same street. It is time to close the duplicate branches and right-size the staff. Also, as many possible activities of the banks must be done through online banking for convenience as well as effectiveness. Most eBanking applications of these banks are mediocre at best with too many limitations.
5. Let the real-estate prices drop
One of the most elegant ways to recuperate our economy is not by going against the tide, but sailing with it. The major catastrophe of the pandemic in the offing will be the real estate – land rates to be precise. Since independence, every affluent Indian family and corrupt politicians have continued to invest in real estate, thereby keeping the land prices increasing. In 2008, even when global real estate prices slumped, land rates in India kept rising; this was not because of markets, but because of the political black money. The first hammer to the real estate came after the Demonetization. Yet, the real estate owners decided to mortgage the property to address their liquidity woes in the hope that there will be a price increase in the future. The current pandemic has crushed that beyond all doubts. Fall in land and real estate is a foregone conclusion; this can be good news for majority Indians since a significant portion of them are without their own house. If banks can bankroll affordable housing projects, there will be a significant rise in demands, which will, in turn, help the consumer durables and other industries to stabilize. The critical trick would be to ensure that a 2bhk apartment will be made available for less than 20 lakhs, and there is easy borrowing available. Also, these projects should be made available to only those without any ancestral property or their own houses. This one decision can turn tables on our national economy for good. The biggest hurdle will be to handle the 90% of politicians across the political lines. But then if PM Modi resolves – there will be no stopping.
6. Make small sum loans available to entrepreneurs at a nominal rate
The current rate of interest for bank deposits is at 6%, whereas the lending rates are at 18%. There is a considerable gap. The government needs to do its best to bring down lending rates. Again, RBI won’t do it of its own accord. The government, Finance Minister in person, will have to do some firm persuasion to make this possible. Drop-in interest rates would make the market have liquid cash, and that can save a lot of businesses and jobs.
7. Employ measures to check black-marketing and hoarding of essential commodities
With the real estate market sure to collapse, a great many corrupt politicians in power – whose black money channels and Benami properties already under the scanner of Enforcement Directorate and Income Tax authorities, will look for ways to make money through devious means to resolve their liquidity woes. Their ideal option is to create artificial scarcity, first, by the blockade and, then, hoarding of essential and non-essential goods through their cronies. There is already a scarcity of essential goods on the rise; the prices may rise by the way over 300%. Therefore, PM Modi must issue not just a strict warning but also deploy measures to combat black market racketeering by deploying the CBI and NSA as this will pose a more significant threat to national security.
To conclude: It is good to be optimistic; by all means, we all must be. But optimism is about giving our best and, then, hoping for the best. Painting a vibrant picture of the future without doing anything in the present is not optimism – but being delusional. We have a certain threat forth us, one that will unleash once (or whenever?) the lockdown period ends.
To overwhelm ourselves with mindless fear is futile. But to hate those who are trying to warn us of the uncertain days ahead – objectively – is disastrous. Enemies will never warn you of the untoward consequences or threats. They will rather keep you in the dark and watch you suffer. Do not crucify those who warn you of tough days ahead. Rather use it to prepare yourself for the challenges that lay ahead.