Pandemonium following the Pandemic :

Indian Dilemma:

Flagging key health issues in a bipolar economic world where most fragile economies continue with their survival struggle while the developed nations flaunt their riches, remains a daunting task. The pandemonium across the world in the aftermath of outbreak has though undermined the resilience of even the most robust of countries . Caution is most aptly reflected in activism of the developed world after the contagion flared into one of the most dreaded one prompting a series of unconventional monetary tools to be brought to fore while scrambling to buttress the health care systems on a scale unparalleled so far.

Understandably championing the cause of developing world ,India for one cannot and should not replicate the models adopted by the developed world. Like a bipolar world of haves and have nots , the economies across the word too have drifted away and morphed from a sensible mutually sharing one to those tottering on the brink of an inevitable paralysis even if temporary on one side and more audaciously competitive on the other.

Policy shifts and subsequent roll outs during these three weeks of April have for most part been considered as sensible but not without inviting some loose commentary about the fiscal financial mismanagement . Sentiments are aired that the stimulus isn’ t bold enough to tie the loose and often fraying ends . Perhaps so,but then this constrained exercise attempts to brace for the multiple shocks that will inevitably follow over an uncertain timeline, possible extending for a period of one year of more.

A prudent support feeding millions and monetizing still more millions by the Govt. mostly to help the most vulnerable but largely to defray the cost of keeping intact the work force at large and retaining the stranded workers of small enterprises across the country for the next few months, is an enthusing combination of compassion and spirited effort to fight back. Again further spending has not been ruled out .

Needless to say , massive containment exercise and prevalence testing calls for expending more resources. Though again, this does not guarantee anything. National lock down or multiple local lock downs later need to take optimal health policy issues into account or else the country could be flying high and blind when making difficult calls in weeks to come.An enormous task of screening tracing and testing given the sheer size of the population, stares the Govt squarely in face giving no leeway. Benefits are obvious. With credible data flow, confidence in economic activity and rejuvenated health care system , resuscitating a hyper ventilating strung up country will be a hard but not insurmountable task.

Debates and challenges of conducting free Covid testing have raged for long in media and minions alike and tensions have often run high with stakeholders flayed for ignoring the health of health care in country for long. A large section in the health care industry holds the view that in these extraordinary times ,Govt must bear the entire cost of testing. This is an irrational and untimely demand , especially when other more pressing socio economic challenges rebuke the policy makers. This is a country run by the people, for the people and by the people. Irrational spending will merely put a more intense stranglehold on tax payer money. CSR initiatives meanwhile take a breather with the Govt for now, as corporate contributions continue to pour into PMCare Fund.

Strangely, even the Apex Court sidelined the issue of footing the bill of testing in private hospitals leaving the decision of levy to independent boards of these institutions.

Spirited run- Barring China , hardly any emerging market economy( EME) has announced the size of stimulus that compares well with what developed countries like USA, UK, Germany for instance have announced. Generous Govt entitlements to a large section of population and extraordinary activism by their respective Central Banks has helped though in short run,to absorb the impact of adverse demand- negative supply syndrome.Countries that can afford to issue more reserve currency like the UK,tend to have a greater elbow room for maneuvering in subsequent times.

With rising fiscal deficit and an economy staring at a dismal GDP growth of 1.5–4 percent for next fiscal by an ambitious estimate, India can ill afford any such adventurism.Perpetually high fiscal deficits have often been a cause of concern while mandating budgetary allocations year on year. Steep decline in revenues of Central coffers for obvious reasons and state exchequers of almost all the 27 States in the Union suffocating for resource crunch in view of mounting redundancy in revenue generating sectors , the opposition may gleefully question Govt’s prudence and may even brand it of crass governance. Being the first responder to the health emergencies, the deficit financing in State Budgets has grown as a cult and is likely to grow wider even without up scaling the outlay. But for Fiscal Responsibility and Budget Management ( FRBMA) where fiscal deficit is required to be managed within 3% of the State GDP, balancing act of budgets would have hit the ceiling. Story is no different for the Center too.

The stress on fiscal management thus is apparent and is gaining momentum with the passage of time.Sensing grim times ahead, even G-secs yield are already showing signs of turning sour .

Payment moratorium to Discoms again is widely considered a sub sovereign default and is advocated vehemently in the garb of upfront bigger stimulus, and asset buyback. This earns a safe recluse to distribution companies in the short run.But deferred liability payments is unarguably a shortsighted strategy to face the future which is for now anything but skin deep.

Few would argue that if monetary and fiscal responses are overdone then non trivial consequences for macro economic stability increases.Needless to say this school of thought wedges a fine line between aggressive pro activism and reckless response in times of national emergency.It is only the outcome that determines the choice between audacity and righteousness.

Series of measures reciprocal to the pandemic times by the RBI including a few unconventional ones like the TLTRO ( Targeted Long Term Repo Operations) along with the rate cuts are designed to push the Banks to buy Corporate bonds making it easier to Non Bank lenders and other companies to raise funds.Inflation is likely to soften sooner and recurrent lock downs across the States are likely to lead to a sharp widening of output. What with exorbitant privilege of US dollar enduring and even reinforcing during these crisis times, RBI may be faced with no other choice other than to go in for another rate cut.

Of course, it may be argued that compared to Fed Reserve or Bank of England , RBI has not done enough, more so because it has refrained from ‘print and spend’ policy, on the argument that the foremost priority remains to trim and possibly mitigate the shocks in the aftermath of lock down when the national economy will need spurring and a good kick start . Mulling hard RBI need to ascertain when ‘much is enough’ .Some would argue that a lesser rate cut in lieu of 75 basis point as done would have served enough and may have left some punch in RBI’s arsenal.The Monetary Policy Committee( MPC) also advocated the necessity to employ uncommitted monetary funds in these extraordinary times to meet unconventional ends. But perhaps what escaped everybody’s attention was the extent and timing. This has left but little elbow room for adjustments in not so distant troubled times.

Having said that, if a large scale contagion is arrested and early policy measures pay off, there is a hope that a swift return to normalcy will see the support of a pragmatic monetary policy. Again, growth projections may falter and run askew if lock down continues even after 40 days. A few informed studies,post first phase of lock down have warned that the contagion may not dither for now and curve may start flattening only towards the end of September 2020. Shocking revelation for a largely agrarian economy which could ill afford any further extensions.What with rabi crop yet to be harvested and reach the Govt grain coffers, notwithstanding a complete stand still of manufacturing and service sector, any successive lock down will be no better than choosing between the devil and the ditch.

The Market- Spooked by the turn of events approx US $ 16 billion exit from Indian equity and bond market over the last month has put India’s performance in dollar terms to somewhere in the middle of bottom half of sample EMEs (Emerging market economies). FPIs ( Foreign Portfolio Investors) currently hold investments of roughly US$ 320 billion in Indian equity and bond market as of now. The combined impact of market value erosion and redemption pressure had already compressed the equity assets under management by FPIs in Indian markets to $ 341 billion by March 15 , 2020 compared with $431 billion at the beginning of the year, a decline of 20%. This however, is no more than a normative portfolio realignment and happens across the globe in hard times.This time on a scale though unheard of.

Remedies-Policy initiatives expedited to reduce the cost of borrowings include pursuing global bond indices and relaxed prudential norms for external fund flow management These steps are likely to benefit the Govt in short run,but fundamental changes call for reinventing the conventional policies. Higher import tariffs and barriers ultimately undermine national competitiveness and export earnings merely service internal liabilities.An urgent revisit to this strategy will bode well for re positioning Indian presence in global markets.

Investor’s confidence on the other hand has also taken a beating in the banking sector.Financials have slumped by 35% in the month of March alone.Instead of ruing for relaxed prudential norms in extraordinary times , Banks will do well by instead of distributing dividends, retain all profits to enhance the capital and in the process send strong resolve to remain competitive in the face of unfolding loss in the economy. Spectre of Democle’s sword will nonetheless continues to haunt the risk framework of this volatile sector for an uncertain time period.

The temporal truth of uncertainty of persisting virus is the one most important reason for the Govt. to shelve some of policy salvos high and dry for opportune moments even as it gears up to meet challenges on all fronts.