Thinkpad: the best plans

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Good Sunday.

You know what they say about the best-designed plans of mice and men. There has been a bit of that in different ways this week.

On Friday, the day of Guru Nanak Jayanti, the Prime Minister announced that controversial agricultural laws would be repealed. The implementation of these had been suspended by the Supreme Court and protests around them continued. In addition, elections are approaching in two major states: Punjab and Uttar Pradesh. Whatever the calculation behind the decision, the attempt to bring about long-standing reform to the agricultural sector is now delayed. Those who know the industry best have argued that there is good in farm laws. But the process, which has been widely criticized for its lack of discussion and debate, erased any good that could have resulted from the attempt. Well.

It’s not the only thing that has gone wrong this week.

India’s largest IPO to date – One 97 Communications or Paytm – crashed and burned down on day one. The stock closed down 27%, saved only by the circuit filter. Just before listing day, Macquarie Research assigned an underperformance rating to the stock, setting its value 40% below the issue price. The stock followed this path as it went public. Macquarie, like many others, questioned the business model. He said Paytm had his finger in too many pies and that competition would lower the unit’s economy. Founder Vijay Shekhar Sharma showed courage, saying he didn’t care about stocks and the brokerage didn’t understand the company’s business model. But as our friends in the markets can say, Bhav Bhagwan Che.

By the way, hours after trading closed on the first day of Paytm’s IPO, the Reserve Bank of India released a new set of guidelines that may work marginally in Paytm’s favor.

The regulator, which has spent months trying to map the digital lending landscape, is essentially trying to restrict lending largely to regulated entities. He wants to set up a nodal body to verify loan applications and even suggests that the government consider a “law on the prohibition of unregulated lending activities”. Doubt which will be easy to convey. You can read the details here.

Specifically, the RBI put an end to a recently popularized loan structure in which the NBFCs linked up with loan service providers using a “first loss default guarantee”. A number of payment applications were thus pushing credit products through their network. Paytm says it doesn’t use this structure. Essentially, under such arrangements, the loan service provider assumes part of the loan risk.

The RBI wants to tackle other more tricky issues, such as how to tackle (old) new products like Buy-Now-Pay-Later and entities like neo-banks and digital banks.

It would be fair to say that the regulator, over the next few years, will have to devote considerable time and space of mind to stay at the forefront of the world of digital finance. I hope he is up to the task.

This week, Reserve Bank Governor Shaktikanta Das also reiterated his concerns about cryptocurrencies. A usually measured Das said: “When the central bank expresses concern about the macroeconomic and financial stability risks stemming from cryptocurrencies, there are serious problems here.” With such strong opposition from a central bank chief that the government has clear confidence in, will he really go ahead and grant regulatory sanction to cryptocurrencies?

For those who wish to understand some of these macro concerns, this piece by Sajjid Chinoy, published in the Indian Express, is worth reading.

We’ll end with two stories that we thought you might want to read.

With inflation talk everywhere, BQ’s Pallavi Nahata decided to head to Chandni Chowk to get the big picture of the economy. Read his takeaways on what a stroll through a bustling market tells us about the economy.

For interest rate watchers, this one will raise eyebrows. Ahead of the crucial monetary policy review, it appears that Reliance Industries, which is one of the largest and most sophisticated treasuries in the market, bought up five-year central and state bonds in large volumes. Why? Food for thought.

See you next week.


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