The covid-19 responders

8 May 2020

Adaptability, survival instincts and resilience marked India’s economic movers and shakers during the pandemic

If the Federal Reserve was the hero for saving the global economy from the credit crunch in 2008, the Reserve Bank of India undoubtedly came into its own during the 54-day three-phase lockdown beginning 25 March. Ben Bernanke achieved legendary status by steering the US to safe harbour from the turbulence caused by home-loan defaults. The low-profile Shaktikanta Das has restored confidence in the financial system by rescuing a failed private bank and ensuring liquidity to the financial services sector at a time the economy was shut down to contain the covid-19 pandemic. The Fed chairman kept interest rates near zero and bought bonds for six years. The RBI governor has injected over Rs 8 lakh crore of liquidity since February by conducting rupee-dollar swaps,  cutting the cash reserve ratio and undertaking targeted long-term repo operations to make available credit to NBFCs, housing financiers, small businesses, farmers and mutual funds. The legacy of the heads of government is weighed against economic growth and employment during their regimes. The outcome of central banks’ interventions is determined by their success in taming inflation without dampening growth. After the initial challenge of lowering the cost of money, the test for Das will be ensuring its transmission to embolden risk-taking and, at the same time, supervising the flow of funds into productive assets by discouraging diversion to create bubbles.

Precision targeting of the problem was not confined to the central bank boss. India’s richest man, too, was aiming at the bull’s eye as he frantically went about mopping up Rs 1.04 lakh crore to meet the self-imposed end June 2020 deadline to bring down Reliance Industries’ Rs 1.61-lakh-crore net debt. Unlike his father, who did not partner with any foreigner even to build the world’s biggest petrochemicals complex, Mukesh Ambani dangled the bait of capital appreciation to entice big-ticket overseas investors for bits and pieces of his conglomerate. Facebook is putting up Rs 43570 crore for 10% equity in a venture that looks great on paper: deploying the chat platform to increase the data usage and user stickiness of Reliance Jio and expand the market of the social network. The hype boosted the stock and prompted two venture capitalists to take exposure at 12.5% premium to the price the social network paid barely 15 days earlier, propelling the digital arm’s valuation to over half of the current market cap of RIL. In the process, the Rs 1.14-lakh-crore Saudi Aramco proposed investment for 20% share in the oil and petrochemical business has been downgraded in nine months by 14.5%, assuming the digital arm subsumes the retail business. In turn, the promoter along with other shareholders will buy their entitlement of one share for every 15 held at 14% discount to the 6.5% gain in the week after the Facebook deal. The price was last seen eight months ago, when Brent oil was trading at around US$63.21 a barrel, more than double the current level. Ambani has managed the remarkable feat of stopping the slide in the stock post crash in demand for polymers. Realizing that the sun is setting on refining, he has enlisted new investors for emerging ventures on the track record of cost-efficiency and scale achieved in the old businesses.

If the discounting of RIL confounds, there was no such ambiguity for consumers during their home confinement. The clamp-down on the spread of infection reaffirmed the indispensability of local grocers, whose resourcefulness was taken for granted but hardly applauded. India’s largest FMGC marketer HUL acknowledged their importance in the Q4 results commentary. India’s most valuable company now wants to leverage its digital prowess to connect them with their community. These unorganized sector links in last-mile reach can be expected to replicate the footsteps of micro financiers, whose rapport with their borrowers facilitates ease of collections and who also become frontline receptors of changes in consumption patterns. Recognition of the important role of the small outlet, which remains functional even during medical emergencies and disasters, signals the emergence of the franchise model. The hole-in-the-wall distributor might get an upgrade and function under the umbrella of a big brand in return for captive audience as against the present practice of green-field expansion by leasing or buying space to set up yet another branch of the flagship. Along with unleashing mayhem, coronavirus has brought into the limelight the adaptability, survival instincts and resilience of India’s economic movers and shakers.

-Mohan Sule