Law makers and regulators are getting on the same page for ease of doing business
without bothering about the bill
Ever
since the US Federal Reserve shifted its gaze last month from inflation-targeting
to job-creation, the role of policy makers and market monitors has come into
focus. Before the pandemic, there was no confusion on what was expected of governments
and various regulators. Elected representatives making laws that turned their
nations into welfare states or were so restrictive so to stifle entrepreneurship
had to face the backlash of higher purchasing spends and low growth. The problem
is that the terms of most democratic governments range from four to five years.
The scope to inflict damage due to recklessness or timidity is extensive,
requiring painful adjustments by the next regime. Regulators balanced populism
and conservatism by calibrating policies that tightened or eased rules. Central
banks tinkered with the flow and cost of money to discourage exuberance or encourage
consumption, while keeping food and non-food output affordable. Efforts of the securities
monitors were to create a level-playing field for issuers and investors. Competition
regulators nipped predatory pricing and unfair sales practices to ensure users
had a choice. With such clear-cut spaces to operate, there should be no recession,
runaway retail prices and speculative bets. Each segment should have a handful
of operators enjoying similar share of the market. Insider trading, stock-rigging
and accounts fudging should be the rarest of rare cases. Unfortunately, textbook
rules do not account for changes in technology and tastes. The IMF and World
Bank prescription of belt-tightening for government excesses has become outdated.
Now the template is more liquidity to boost consumption.
The
pandemic has blurred the boundaries between the functions of legislators and
gatekeepers. Ideally, they are supposed to work at cross-purpose without paralyzing
the system. If the government adopted loose fiscal habits of cash infusion, soft
taxes and high expenditure to support the distressed economy, the monetary
authority was expected to make funds dearer to nip any bubbles in the making. Right
now, both the arms are working in tandem to make available low-cost loans. In
fact, the Fed has strayed from its mandate to boldly trespass into a domain that
is not in its charter. It will keep the tap of cheap credit turned on for as long
as it takes to achieve saturation employment and retail demand to outstrip supply
by 2%. The Reserve Bank of India is in no mood to bump up the real negative interest
rates for fear of stalling economic recovery. After the Rs 50000-crore targeted
refinancing in May, NBFCs were offered another Rs10000 crore in August. Servicing
of term loans was suspended for six months, an action best suited for politicians.
Easing of asset classification was permitted to offset provisioning for
covid-19 defaults. A one-time restructuring of loans outstanding before the medical
emergency is set to be followed by sector-specific prescriptions. Priority sector lending norms have been
tweaked to include education and social infrastructure. Flow to credit-starved districts
will earn incentives.
The
capital market watchdog turned endearing from brusque. Preferential issues at
higher of the volume-weighted average price over 12 weeks or two weeks cleared
the way for cash-starved Corporate India to tap into the US and India stimulus.
Scaling down the minimum market cap of public holding in a rights issue to Rs
100 crore from Rs 250 crore, threshold for subscription to 75% from 90% and prior listing to 18 months from three years
have provided flexibility to promoters to increase their exposure to support
their companies. Doing away filing of draft offer for rights issues up to Rs 25
crore is to help small enterprises. The roll-back of the gap between buybacks to
six months from one year opens the exit route for the shareholders. Side-pocketing of stressed assets can be done the
moment a proposal for debt recast is received by the fund house, thereby
stemming the erosion of NAVs and redemption pressure. The clampdown on multi-cap
funds and end-of-the-day margin in the cash segment plugs another loophole for manipulation.
Instead of lazy investing of concentrating on large caps, fund managers need to
take exposure evenly across different categories of stocks or allow investor migration.
Brokers can no longer misuse shares pledged for rampant intra-day trading as each
transaction has to be accompanied by adequate backup. What needs to be seen is who
is going to pick the tab for the ballooning bad loans and loss of price discovery
coming as accompaniments in the feel-good feast.
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