Thinkpad: Budget Afterglow And Afterblow

Happy weekend.

If your first love is equities, you are probably basking in the afterglow of the budget. Equities would have wanted a growth-focused budget and that's what we got. The budget was one of the factors that prompted Jefferies' Chris Wood to predict that the BSE Sensex will hit 100,000 in five years.

The government chose to prioritise capex, although there is debate over just how much capex has been increased by. There are also questions about the government's revenue estimates. And some consternation over the poor disinvestment performance, which Sajeet Manghat discussed in this chat with the secretary in-charge Tuhin Kanta.

Even so, that the government chose growth over quicker fiscal consolidation, capital expenditure over revenue expenditure is undeniable.

Finance Secretary TV Somanathan in this conversation explained the rationale quite clearly. "The thrust is trying to create gainful employment rather than palliative employment or do relief expenditure," he said. This, according to him, was also the reason the government set aside Rs 1 lakh crore for loans to states for capex. "Both for reasons of quick delivery of funds into actual shovels on the ground and for geographical dispersal... we decided that this was the way forward," he said.

Now, if you are a 'bond market wallah' (a phrase coined by Business Standard columnist TCA Srinivasa Raghavan), you don't wanna hear any of this. The budget, the 6.4% planned fiscal deficit, the Rs 15 lakh crore borrowing plan and no progress on the global bond listing, left bond markets feeling the afterblow of the budget. Yields spiked by 30 basis points.

Neelkanth Mishra of Credit Suisse sees the bond market reaction as extreme. "...the (bond) market as a whole somehow doesn't seem to be pricing in positive surprises on tax-to-GDP, on government intent versus ability to spend ... those things are 'water off a rubber ducks back' for the bond market and they are only focusing on a higher borrowing number," he lamented in this interview while sharing his perspective on the budget.

But 'Bhav Bhagwan Che' holds as much for bonds as it does for equities.

Stuck in the middle is, you guessed it, the RBI.

Ideally, they should start raising at least the reverse repo rate when they meet next week. But will the fear of another adverse reaction from the bond markets (although there might not be one) keep them on hold? Or will they look away and step up the pace of normalisation? Remember they have, confoundingly, declared the 'orderly evolution of the yield curve', as a 'public good'...

In other news, Finance Minister Nirmala Sitharaman said that India will move towards a central bank digital currency this year. A small pilot project is underway but details are sketchy and we would guess that a publicly available retail CBDC is far far away. But there are some interesting theoretical questions here—on the implications for banks, monetary policy and privacy. We discussed some of those with Cornell University's Eswar Prasad, author of 'Future Of Money'. You can watch here if you are one of the (admittedly) handful of people interested in this space.

Finally, if you are done with all the seriousness of the budget, switch focus to the implosion underway at fintech firm BharatPe. The founder Ashneer Grover, now a Shark Tank star, is at loggerheads with the firm he founded. He feels he is being crucified and should be getting a medal instead for some of what he has done at the firm, he told BQ's Vishwanath Nair. The firm's initial investigations, meanwhile, are throwing up all sorts of issues. To borrow Grover's own line from Shark Tank—Mazak hai kya?

Till next week.