In this briefing:
- India: Notes from Hindi Heartland, There Are Issues but People Don’t See a Better Choice than Modi
- Farm Loan WaiversTo Dampen Credit Growth Cycle
- Are US Stocks A Buy Yet?
- Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
- Direct Income Transfers Likely Soon; Universal Basic Income Possible By 2024 Funded by RBI Reserves
1. India: Notes from Hindi Heartland, There Are Issues but People Don’t See a Better Choice than Modi
We have spent more than ten days in Uttar Pradesh in the second half of December 2018 and tried to assess the chances for BJP and how it could perform in 2019 Lok Sabha elections. Of course the number of seats which each party could win depends more on coalitions, the vote share will remain important nonetheless. We were trying to understand the voting preference of people and the political choices they will be making next year.
First, the good news for BJP is that Prime Minister continues to enjoy almost similar level of popularity as 2014 (the previous Lok Sabha elections) and 2017 (previous Assembly elections in the state). There is also perception that BJP Governments are in general much less corrupt than administration provided by other political parties including Congress. BJP is by far the No. 1 political entity in the state because of Modi’s leadership.
But there is also important bad news, a) the level of satisfaction with state Govt is much lower, b) issues such as cow protection have become nuisance for many people, farmers for example, c) there is a perception that BJP’s simple majority at the Centre and 3/4th majority in state made accountability more difficult and that was the reason governance also suffered in a big way, and, d) people also think that BJP’s elected representatives are not qualitatively different vs. other parties.
2. Farm Loan WaiversTo Dampen Credit Growth Cycle
The NPA growth cycle affects credit growth cycle negatively. The recent farm waivers announced by many state governments and the speculations of a nationwide farm loan waiver by the Central government do not augur well for the banks’ credit space in India.
3. Are US Stocks A Buy Yet?
- 5%-like rallies on Wall Street are signs of a bear market not a bull market
- Bull markets require strong liquidity and low risk appetite, neither yet apply
- Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
- Recent large fall in risk appetite consistent with upcoming economic recession
4. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
The year 2018 has proven tumultuous for global markets. Rapidly changing geopolitical priorities of the US, an erstwhile hegemon, have played a role no less significant than the withdrawal of liquidity by leading central banks or US monetary policy tightening. The US has openly declared that it is in a state of “cold war” with China. Despite the recent truce, signs are abundant that the confrontation between the two global superpowers will continue into 2019 and beyond. In 2019, we expect more countries to find themselves in a position where they must choose who they want to side with, the US or China. There are other tectonic shifts, too, which are causing re-alignment of global geopolitical alliances.
5. Direct Income Transfers Likely Soon; Universal Basic Income Possible By 2024 Funded by RBI Reserves
Direct income transfers to farmers are likely to become reality as competitive loan waivers are fast becoming a norm than an exception and every party is offering a larger waiver.
Direct income transfers have been quite successful in the South Indian state of Telangana with KCR promising one at the national level if the Federal front (that he is proposing) is voted to power in the general elections.
Cost of each of the measures (from loan waivers to universal basic income for all Indians) is between 0.7% to 2.7% of GDP with Universal Basic Income (Rs 7620/individual for 75% of Indians) costing the highest.
Even as initial fiscal costs are alarming, a gradual scale up (like in the Rural Employment Guarantee Scheme) and transfer of reserves from RBI in tranches could mitigate some fiscal impact. We expect the expert committee of the govt and the RBI to identify transferable reserves between Rs 1.0trn – 3.0trn.
Overall, the freebies to Rural India will certainly power the consumption story strongly in 2019 with products sold in rural areas like FMCG, tractors and motorcycles expected to gain.
