Thread by @FunduInvestor

Many people have been saying Economy has been messed up by the current Government and government's focus has been missing on the economy. Have been blaming Demonetization and GST for last couple of years. Read on. Let's find out

Some assumptions before we start
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1. Economy Grows on Liquidity which is oxygen for growth, you liquidity out, market & economy will die off. That's why economies world over bounced off on QE after the world's second worst crisis in 2008. Did everywhere the Home asset prices recover to the level's pre 2008
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2. Any reform done by govt, has a gestation period for it to play out and make an impact and no it is not a month or two but mostly a year or two at minimum to play out

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In this backdrop, let's understand what Demonetization and GST were aimed for
a. Formalization of the economy (I am still not getting into political aspect of Demo)
b. Plugging the leakages and corruption

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Now everyone has been blaming Demo & GST but what they only did was formalize the economy, ensure organized & unorganized players have a level field & broadbasing the tax net. You wont stop doing business if your only choice is to earn formally. U'll adapt

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In my opinion, the real culprit has been the Liquidity and credit growth. Credit growth currently is at a 59 year low. How did we reach here? Why did the banks stop lending? That's their main income generating activity hence fails me to understand

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why would banks/NBFC's not lend unless unless they are starpped for funds, their funds are tied up in uneconomic activities.

This coupled with the fact that RBI getting strict on provisioning meant more funds required for provisioning.

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Plus government focus on getting the culprits behind corruption and reckless lending, everyone took the safest position that they could take - dont lend it.

Now let's look at what the govt has done and how it has been focusing to improve the situation

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1. NPA resolution: with the new bankruptcy act we have almost resolved the steel sector NPA's. Power Sector seems to be the next target. This resolution even if at 50% would push those funds back to economy

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2. MSME - Govt made a rule on MSME receivables, any payment delay beyond 45 days of credit to MSME will have to be paid with interest. This has started the liquidity cycle for NBFC's

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3. Regular review of Bank Credit growth: Govt recently has started regular review of Bank credit growth. This will ensure funds start flowing out in the economy

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4. Corporate Tax cut: Leaving corporations with higher cash to cater to their needs and expansion plans. Again an indirect way to destress balance sheet & improve liquidity. Newer capacities at much lower corp tax would ensure much more foreign money flows in the economy

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Again, tapping into cash rich MNC's etc to incentivise them to invest in India which will get them bring more capital. Make india an Export hub. True essence of Make in India. Govt is also planning to soon announce Export incentives

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5. Increase FDI in many sectors: Again results in increased Liquidity flow in Economy

There is no point blaming GST and Demonetization - it is akin to saying in an economy of thieves let everyone steal else everyone will die off.

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After a week of Corp tax cut, many said so many firms moved to Vietnam and so less to India. Now either you are plain dumb or you are playing your own agenda. Do you produce a child just next day of your marriage. Wait for a year or two for this to play out

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In my opinion, this is masterstroke of a reform - sabki faad dega in a year or two !! You will see unprecedented level of investment. MNC's already have a base here, why would they not bring their manufacturing in India and reap the benefit of lower corporate tax at 15%.

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In my opinion, this state of economy has nothing to do with GST or Demonetization, it is more due to liquidity challenges posed due to reckless lending in congress era and resultant NPA's

And no I am not pushing the blame aside, Just seeing the problem for what it is [17/17 End]

These investments in the economy will bring elevated levels of Job growth, higher incomes, spending and will have a profound effect on economy

The opportunity if for all of us to loose. I might soon do a thread on what each of govt steps would entail in terms of stocks/sectors

Also, just to add one point - Signs of Liquidity crunch were there in the market as early as May 2017.

Those who work in treasury department know of it firsthand !!