The bromance between Donald Trump and Narendra Modi presents the kind of rivalry no world leader wants: the name of the fastest growing Covid-19 epidemic in the world.
Advantage, Indian Prime Minister Modi. With 4.2 million instances shown to his credit, U.S. President Trump’s country is advancing in absolute terms. But the 20% increase in infections in India last week to 1.4 million puts Modi’s country at the most sensitive in terms of speed.
And that’s the last thing Asia’s third-largest economy wants as 2020 unfolds before our eyes.
At the beginning of the year, India grew by at least 5%. Now we see that amount being maximized, at best. Worse, perhaps, this may be too positive given the terrible state of the global call and the pre-existing situations that New Delhi has brought to this pandemic.
The maxim is a dysfunctional economy that Modi has been slow to assume in the 68 months before India showed its first covid-19 case. The most damaging disease is a banking formula laden with bad debts and a government that turns a blind eye as the symptoms of credit dislocations intensify.
Don’t take my word for it. The new books of two former senior central bank officials paint a worrying picture of the gulf between what Modi has promised in terms of modernizing a chaotic monetary sector and ambitious action. The amount of efforts to reduce the duration of bad debts disappoints at best.
An e-book through former India Reserve Bank intern Urjit Patel, titled Discovered, shows how Modi’s approval government has gone through to dilute new bankruptcy legislation designed to force banks to deal with bad debts. “Instead of strengthening and maintaining the achievements achieved so far, there has been an environment to move slowly on the pedal,” Patel wrote. “Until then, for the most part, the Finance Minister and I were on the same page, with common conversations about the operational effectiveness of old legislation.”
Such episodes support Modi’s efforts to assign an ambitious monetary symbol. Patel lasted just over two years in the post, having replaced the highly reputed Raghuram Rajan in September 2016. Rajan had also experienced an exit from the RBI.
Patel’s replacement, Shaktikanta Das, acted temporarily to relieve pressure on lenders, all carrots and no stick. Governor Das has set a deadline for forcing delinquenists to go bankrupt. Lenders had 30 days to review notable accounts and 180 more days to expand restructuring plans, a significant relief from past delays.
Months after Patel’s alarming departure, his deputy, Viral Acharya, was gone. His own forthcoming e-book would explore the government’s inability to meet the challenge of bad debts. According to Acharya’s account, there had been a strategy to blank bank balance sheets and recapitalize the industry. However, “in about 10 months, progress has only stalled, but several policies have declined,” he says.
It’s a Modinomics model. Governor Rajan took over as head of the RBI in 2013, several months before Modi took over as minister. The former big shot at the International Monetary Fund has achieved a strong position in world circles. And its skilful political progression amid the “tuning tantrum” in emerging markets has been attributed to New Delhi escaping the risk of degradation to garbage status.
Rajan, however, is not liberal enough about financial easing. Modi opted for a replacement that the idea would be more compatible. And yet Patel has also proved to be his political saboteur, reluctant to go far enough to help the passing government make the challenge of bad debts less serious. But as with other diseases that stretch below the surface, the coronavirus crisis reminds the world why India Inc. is not in a position for global prime time.
In March, regulators allowed lenders to avoid collecting bills from borrowers for 90 days. Regulators then added another 3 months to overdue bills. The challenge for lenders, however, is that investors are eager to see where things were in June when they publish the quarterly results. Ultimately, it is more difficult than ever to assess the suitability of India Inc.
Gavekal Research warns of a “debt time bomb.” The RBI estimates that the proportion of non-delinquent loans will be 12.5% through March 2021, or 14.7% in case of “very serious stress”. This situation is now less uncertain than safe.
All of this reflects the huge gap between the historic reforms it promised in 2014 and the situation in India in 2020. Modi has effectively opened up sectors such as aviation, defence and insurance. He oversaw the adoption of a national tax on goods and facilities. However, it is largely susceptible to literally vital reforms: labor, land, tax rates and the opening of the retail industry much more securely.
If Modi had used the first five-year term to redo India, he was re-elected in 2019, the economy could improve in the face of the consequences of Covid-19. Your banking formula probably wouldn’t weaken. And its absorbents of fiscal and financial surprises would possibly have greater flexibility to stabilize expansion as coronavirus instances increase.
“Any hope of a V-shaped recovery in India is dead,” Gavekal Research analysts Tom Miller and Udith Sikand said in a new report. “With registered infections reaching 1.5 million and a large number of localized blockades that hamper economic recovery, India can expect a slower U-shaped recovery. And with its long-standing banks preparing to absorb a new circular of bad debts, a prolonged L-shaped recession is not out of the question.
In the absolute cases of Covid-19, India is only the United States and Brazil. The fastest developing Indian states are Maharashtra, Tamil Nadu, Andhra Pradesh and Karnataka. The moment when the most populous country has many things to do to deal with growing domestic infections and global unrest. These demanding situations are compounded by cracks in India’s underlying monetary system, one would have expected Modi to have resolved now.
I’m a Tokyo-based journalist, a former columnist for Barron’s and Bloomberg and “Japanization: What the World Can Learn from Japan’s Lost Decades.” My journalism
I’m a Tokyo-based journalist, a former columnist for Barron’s and Bloomberg and “Japanization: What the World Can Learn from Japan’s Lost Decades.” My journalism awards come with the 2010 Commentary Award from the American Society of Business Publishers and Writers.