The big-bang year

Cash was king as government chased tax evaders and promoters tapped profit-makers to sustain capital-guzzlers in the group

By Mohan Sule

If the assassination of a president was a seminal moment for Americans (Where were you when Kennedy was shot?), it arrived with a thud for Indians at 8 pm on 8 November. Like addicts displaying withdrawal symptoms, the forfeiture of high denomination notes sent everyone scurrying to take stock of their cash chest. There was shock and awe even on the other side of the Atlantic at the election of a maverick as president, perhaps demonstrating that the oldest and the largest democracies in the world share more in common than thought of: the off-streaming of the mainstream media. There was anger, denial and finally acceptance of the ostensible drive to unearth black money and choke corruption. The acrimony turned from the lack of preparation, despite repeated explanations by the finance minister on the need to maintain secrecy, to the positives and pitfalls of a digital India. The meltdown was not restricted to an anti-corruption crusader and a fiery leader of an impoverished state coming out of many years of Communist rule. The most pathetic lot was the economists, clueless on the outcome of the mind-boggling exercise just as they were split wide open on the continuation of the previous central bank governor. The tinge of skepticism if it is ever possible for India to become cashless was derived from the four-storied GST structure and the wrestling between the Centre and the states on the degree of control over revenues.

Control was at the heart of other dramas unfolding elsewhere. At Bombay House, allegations of coup were aired by the retired honcho who refused to fade out gracefully and countered by accusations of fraud by his successor who did want to exit quietly as the shareholders saw their wealth evaporate and corporate governance was condensed to a tussle between izzat and downsizing. Turf wars were not always internecine. The aggressive business model of a new telecom services provider erupted in a battle for survival, with user’s interconnectivity becoming the dead point as existing players retaliated. The exhaustion led to tepid response to spectrum auction, disrupting government calculation that had already gone haywire due to failure to stick to the PSU divestment timeline. Cartelization was not restricted to the air waves. Cement producers in India and drug exporters to the US were pulled up by monitors for ganging up to fix prices, raising concern over the sustainability of their valuations. The worry extended to tech stocks facing cut in spends by the financial sector in the US, Brexit and the EU. Even as emerging markets’ currencies played snakes and ladders with the dollar, boosting and pulling down ferrous and non-ferrous metals in turns, another deadly game was being played at the LoC, with surgical strikes countering terror attacks on army bases.

Meanwhile, promoters resorted to complex restructuring exercises in the name of synergy but in reality to suck out cash from profit-making companies to help capital-intensive businesses. Uncertainty arising from uneven global growth and an increasingly imminent second hike in US interest rates since the credit crunch of September 2008 kept domestic equities range-bound but propelled the Dow to new heights. Will they fly out or stay put was the dilemma of local investors second-guessing the behavior of foreign portfolio investors despite them turning net sellers for most part of the year. The renewed rural buying after a normal south-west monsoon following two years of deficiency bolstered earnings of a host of sectors ranging from two-wheelers to cement and consumer durables. The accord on cutting production to stabilize the declining trend in crude prices in the waning days of 2016 was a solace for project exporters depending on orders from the Gulf region and to commodities depressed by a strong dollar. It was not only gold whose luster was fading due to spurt in prices riding on a weak rupee and government crackdown on jewelry sales in cash and on imposition of cap on holdings. Liquor, too, became scarce as Kerala and Bihar banned sales. For banks groaning under bad loans, the surge in deposits post demonetization was a blessing as bond yields dived on easy liquidity, boosting treasury income. Stocks, meanwhile, continued to trade volatile, unable to make up their mind if the cash crunch will be a bigger threat to growth or the outflow of foreign funds to the US due to belief of increased spending on infrastructure. In a nutshell, the paradox of growth coming at the expense of trade barriers in one corner while increasing transparency and ease of doing business trying to be the selling points in another perfectly captured the essence of the year that was.