Thread by @RajeevthePawar

#Moodys has pulled down its growth forecast for FY19 to 5.8%. Only surprise is why it’s not even lower. In the past year growth has collapsed from 8% to 5%. /1
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#India #CPI #GDP #RBI #bonds #inflation #ratecut #NBFC #jobs #credit #NPA #NCLT #growth

On the other hand #CPI is now at 4.6%. The laxmanrekha of 4% has been breached. A mix of drought, floods and unseasonal rain is driving food prices up. Core #inflation continues to fall to 3.7% reflecting the slowdown. /2
#India #GDP #RBI #bonds #ratecut #NBFC #jobs #credit #NPA

The wisemen and women of the economy have only one mantra - Cut, Pray, Hope. When in doubt cut rates.135 bps done but transmission is limited. We are told don’t look at nominal, real rates are still high. A single large cut is required. /3
#India #CPI #GDP #RBI #bonds #inflation

But it’s now reached a stage where even the bond market is ignoring the cuts! The new 10 yr issued just a month ago is now 6 bps higher at 6.51%. The old bond is at 6.70%, 155 bps above the repo rate! /4
#India #CPI #GDP #RBI #bonds #inflation #ratecut #NBFC #jobs #credit #NPA

This is on top of a huge liquidity infusion. System surplus is at 3L crs. Yet the curve continues to steepen. The reason is simple. This is a crisis of Credit and Confidence. Not a liquidity crisis. Not one of high rates but of #Credit. /5
#India #CPI #GDP #RBI #bonds #inflation

The term premia for GOI has ballooned. They are caught in a vicious circle. A slowing economy means lower tax collections and drought and floods mean greater rural write offs. /6
#India #CPI #GDP #RBI #bonds #inflation #ratecut #NBFC #jobs #credit #NPA #NCLT #growth

They will therefore have to borrow more - GSecs, GOI Serviced, Guaranteed, State, PSU. This is what is driving term and credit spreads up. Alongside are the banks. It’s 1 yr but #ILFS and #DHFL are still festering wounds which we choose to ignore. /7
#India #CPI #GDP #RBI #bond

Until the #NBFC crisis is resolved there will be no return of confidence. Banks will not lend to MSMEs directly or otherwise.When Barings collapsed, the BOE ensured a sale to ING within a weekend. Here it’s 1yr and we don’t even know the size of the hole. /8
#India #CPI #GDP #RBI

Any recovery requires an end user. Goods and Services require a buyer and a buyer requires income which can only come from Jobs. The single focus of the govt needs to be job creation. /9
#India #CPI #GDP #RBI #bonds #inflation #ratecut #NBFC #jobs #credit #NPA #NCLT #growth

Our young population in not a boon. Its a problem. Young people at a working age have aspirations and dreams which require money which only comes from #Jobs. A #consumption driven recovery needs income. /10
#India #CPI #GDP #RBI #bonds #inflation #ratecut #NBFC #credit #NPA

Cut #rates, lower #taxes, flood the system with liquidity. None of it will bring credit risk premia down. In other words a bank will not lend just because it has a pile of cash. The ability needs to be matched with willingness. /11
#India #CPI #GDP #RBI #bonds #inflation #NBFC

And Willingness to lend only comes when a bank knows its money is going to be returned. That confidence is still not there. If your b/s is bogged down with provisioning, #NPAs and #NCLT cases the urge to lend reduces. /12
#India #CPI #GDP #RBI #bonds #inflation #ratecut #jobs

Concrete steps are needed. One Sectoral or Structural measures.The real estate #AIF is a great step. More such sector specific measures are required. Second. The NBFC mess has to be cleaned up. Sell. Shut. Merge. Whatever it takes. Quickly. /13
#India #CPI #GDP #RBI #bonds

Third. Reduce borrowing.Accelerate divestment. #IndianOil sale is a good idea. Also stop throwing good money after bad in #AirIndia and BSNL. Reconsider a sovereign bond. Do it within limits. It will ease domestic bond supply pressure. /14
#India #CPI #GDP #RBI #bonds #inflation

Lastly neither 3.3% on the fiscal or 4% on inflation is cast in stone. #Growth requires an expansionary policy. There is no shame in 3.5% or even 4%. #Inflation target is NOT 4%. Its a 2%-6% band. Stay in the band. /15
#India #CPI #GDP #RBI #bonds #ratecut #NBFC #jobs #credit

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