4 min read.Updated: 29 Dec 2021, 10:50 PM ISTMadan Sabnavis
With 2021 coming to an end, independent economist Madan Sabnavis takes a look back at the major economic events that drove emotion
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Playing will it, won’t it with the US Fed
The US Federal Reserve’s stance on quantitative easing and interest rates has become the beacon for all central banks and markets which are trying to guess when the Fed will pull the plug. Indications are that happy liquidity days are over, and there will be tightening from 2022. There is still anxiety before the Federal Open Market Committee meet, and, indices slide and bonds remain nervous till the statement goes public. The ‘when’ of it kept everyone on their toes.
The RBI and its firm 9.5% stance
The Reserve Bank of India is firm in its conviction that it will not budge until growth is here to stay. The government is gung-ho about double-digit growth and believes the economy is in take-off state, but the RBI maintains its 9.5% stance. How long will inflation not matter? Inflation was 6.2% last year and has averaged 5.2% so far. This looks embedded. The question: When will the RBI decide to raise rates, as real interest rates are negative, and inflation is hurting.
Growth and its many shapes
GDP growth was 4% in FY20, -7.3% in FY21. Therefore, anything will statistically look large in 2022. Economists debated if it was U-shaped (gradually rising) or V (sharp recovery). Even 9.5% growth would mean not more than 1.5% over FY20. The clairvoyant went to K-shaped (some sectors spike, others decline). It is a matter of time to get to F-shaped, where sectors stabilize at lower and higher levels, or W, which alternates over quarters. In the end, we could just go in circles, or O
The price of petrol continues to be a stormy issue and became a political tool for the opposition. The public’s screams do not seem to matter as the price has shot past ₹110 a litre and settled there. The Centre lowered excise duty by ₹10 a litre and asked states to do the same. Some did; others did not. Even as the global price of crude fell from $85 to $75 a barrel, we continue to pay ₹110 a litre for petrol and over ₹100 per litre for diesel. This economics is still baffling, to say the least.
Waking up to cryptocurrency
Cryptocurrency flourished, followed by a call for a ban and regulation. As exchanges sprang up, no one paid heed. It has now dawned on everyone that it could be a black hole. Are hawala transactions taking place? Is money being used for illegal activity? Are people paying taxes? We don’t have answers though websites of exchanges are transparent. Investments could total ₹6 trillion, almost 50% of small savings. There is an awakening though no one knows what to do.
Exciting but rocky ride at the bourses
The stock market revelled in the U-shaped, K-shaped or V-shaped recovery. As the market gurus showed us the moon, IPOs flowed like an endless stream. This reverberated in the secondary market too with the Sensex climbing to dizzy heights. 50,000 seemed to be the base as 60,000 was crossed and 75,000 was spoken of. But what goes up must come down. The fear is palpable, the indices have become volatile. Almost 50% of the IPOs are going below the issue price.
The magic math of the Budget
GST (goods and service tax) flows picked up; the target of ₹1.1 trillion per month seems conservative as ₹1.4 trillion looks more likely. All collections are up and the government is confident of the big LIC sale that is to garner ₹1 trillion. The government has got a supplementary demand for ₹3 trillion expenditure outside the budget. Yet pundits say fiscal deficit will be maintained at 6.8%. This will be nothing short of a miracle and a model for other countries to borrow!
Air India: The deal that left all happy
This was the toughest company to disinvest. A loss-making venture and a debt of over ₹60,000 crore was a deterrent for any potential buyer. But Air India has some of the best aircraft and routes. The Tatas prevailed, and paid just ₹18,000 crore, including cash of ₹2,700 crore only. The Tatas said it was a homecoming; the government was happy to get the company off its hands. The ₹42,000-crore debt was transferred to a special purpose vehicle. Everyone wins.
The liquidity deluge, a problem of plenty
The government doing everything it took, and everything it could, to support the economy meant an infusion of almost ₹6 trillion to ₹8 trillion of liquidity in the system. The problem with this plenty, now, is how to drain it out. It will have to be by the drop as any statement made by the Reserve Bank of India can get magnified in the market, which is already on the edge and asking questions about when and how the RBI will roll it all back.
The great repeal: The farm laws
The farmers finally withdrew their stir after a year. We are back to only the mandi system and the continuation of the tyranny of status quo for small farmers. That one group of farmers could hold the government back from introducing what would have been great reform shows the power of a lobby group. Some may say Gandhian protest still works in independent India. But these farmers had the wherewithal to remain on the ground for a year. Who was tilling the land then?