Welcome 2020

Last day of the second decade of the 21st century. We are already gearing up to welcome the New Year. Years have been rolling by so fast these days - almost like a blur. Years used to languidly move in our childhood as we savoured each day. Our lifestyles have become too hectic.

This is the time of the year to reflect on all the experiences gained, lessons learned, goals achieved, happiness gathered, and pain endured.

2018 was globally chaotic, volatile and uncertain as we tried to get accustomed to the new world order. 2019 was domestically volatile, uncertain and unexpected.

The year 2019 was a big election year globally. Including the general election in India, there were elections in 62 other countries influencing almost two-fifth of the world population.

The year also witnessed major terror attacks all around the globe including several lone-wolf mass shootings and stabbings in the United States and the UK. The Christchurch terror attack was the deadliest in the history of New Zealand. The wave of suicide bombings on lazy Sunday targeting churches and luxury hotels in Sri Lanka was considered one of the worst terrorist attacks in the world since September 9/11 in the USA. In India too, the year started with the attack on the convoy of security personnel in Pulwama, Kashmir by a vehicle-borne suicide bomber killing 40 CRPF personnel. The responsibility for the attack was claimed by the Pakistan-based militant group Jaish-e-Mohammed. India responded, for the first time, through an air-strike across the border to flush out the terror camps.

The country witnessed several major decisions during the year – from Ayodhya verdict to article 370 abrogation to passing of CAA.

As for the economy, India's real GDP growth plunged to a 26-quarter low of 4.5 percent in the quarter ending September 2019. Part of the slowdown was due to global headwinds like trade uncertainty and geopolitical tensions. But it was exacerbated by several domestic issues.  

Surprisingly, the nominal GDP growth slowed to 6.1 percent in Sept’19 vs. 8.0 percent in the previous quarter, due to fall in both the real growth rate and the deflator (inflation). A few months back 6 percent was the real GDP growth. I am sure, many analysts tracking GDP growth has not seen such low a number. A low nominal GDP growth will put significant pressure on fiscal numbers as those were estimated with an expectation of 12 percent growth. However, the macro stability is still very much intact with low inflation, low current account deficit, and large forex reserves.

The year also had two budget presentations, being the election year. The Interim Budget, also called Vote-on-Account, presented by Arun Jaitley before election balanced the ‘hosh-and-josh’ of election successfully marrying populism with pragmatism. The actual budget presented by Nirmal Sitaraman in July, however, could not meet the sky-high expectations of many. The Finance Ministry, however, started announcing various measures to boost the economy almost every Friday in August. These measures were aimed at sectors that were impacted significantly by the slowdown and could potentially help in the growth revival.

In a surprise move in September, the government overhauled the corporate income taxes. The corporate tax was lowered from 30% to 22% and for newly incorporated domestic manufacturing companies the tax was lowered to 15% without any exemptions. Most probably, these measures could have been announced during the budget itself. Thus, the Finance Minister lost the opportunity of presenting another historical ‘Dream Budget’ in July.

The RBI moved in tandem with the government and changed its stance to accommodative and started its easing cycle to boost growth. The current Repo rate of 5.15% is almost close to the low rates witnessed after the Global Financial Crisis. However, despite these rate cuts, the yield curve steepened fearing higher fiscal deficit. The large cumulative Repo rate cut of 135bp since February resulted in only a 25bp fall in the deposit rate. The weighted average lending rate on outstanding rupee loans did not change much. There was hardly any transmission of these RBI rate cuts to lending rates. Reasons were many including risk aversion of banks, elevated public sector borrowings and higher small savings rates set by the government etc.

This year we expanded our vocabulary too. We were familiar with the ‘Twin Balance Sheet’ (TBS) problem that referred to the stressed balance sheet of banks and corporates (particularly in the infrastructure sector) of India. That has changed to the ‘Triple Balance Sheet’ problem to encompass the bad assets in NBFCs. The same was described by Arvind Subramaniam as two waves of Twin Balance Sheet (TBS) problem. In the first wave TBS1, the bank loans made to infrastructure sector companies during the boom period of 2004-11 turned bad while the TBS-2 was primarily a post-demonetisation phenomenon, involving NBFCs and real estate firms. The RBI started its own desi version of ‘Operation Twist’ in order to facilitate the transmission of rate cuts to the real economy. The idea was to sell lower maturity bonds and buy higher maturity bonds in order to bring down interest rates of long-term bonds prompting yield curve to flatten.

Hopefully, the growth has bottomed out and we will see a U-shaped recovery in the New Year.

Not everything was gloom-and-doom. There was several positive news during the year. India improved its ranking in ‘Ease of Doing business’. From 77th in 2018 and 63rd position mostly due to its sharp improvement in resolving insolvency due to Insolvency and Bankruptcy Code (IBC). The equity market got its swag back. In early December 2019, Sundar Pichai took over the role of CEO at Alphabet joining a long list of India-born CEOs of major global companies - Satya Nadella of Microsoft, Rajeev Suri of Nokia, Shantanu Narayen of Adobe and, until her departure last year, Indra Nooyi at PepsiCo. One study, by the University of Southern New Hampshire, says that Indian managers are more successful because of "a paradoxical blend of genuine personal humility and intense professional will".

Women athletes have been making our country proud for many years now. In a first in the history of Indian sports, all nine athletes recommended by the ministry for the Padma awards were women. However, we have not been able to provide a safe public space for our young daughters. Another brutal gangrape and murder of young doctor shook India, 7 years after the Nirbhaya incident. The brutality of Unnao and Kathua incidents would not be forgotten easily. Tough laws are not a deterrent if the implementation of those laws is pathetic. Sadly, we have failed to raise our boys with the right values.

As we start counting hours to welcome the New Year, congratulate yourself for surviving 2019 and start the New Year with loads of hope.

As for me, I have stopped trying to change the world and no new resolutions too (My old ones are still lurking there). I have realised that I can only change myself.

“Yesterday I was clever, So I wanted to change the world. Today I am wise, So I am changing myself.” – Rumi

Happy New Year to all!!!