The article contemplates over the recent increase in the borrowings government announced in an attempt to make a fiscal stimulus but the cost of such stimulus has been less thought over by the government.
Recently government increased its borrowing by Rs 46k crores (~21% of amount already mobilized till date) for the month between Feb 20 and March 20. Although assured by RBI that the borrowings would be conducted in non-disruptive manner, the market is less convinced about it. Already the centre’s program of borrowing has overshot by 41%. RBI can also now no longer participate in any government debt auction. At the best it can do is through open market operations is to ensure lowest rate of interest for govt debt. However, if bank doesn’t succeed in this, the interest rate will go up. Now, interest rates on government securities are, by its virtue, risk free and set the floor rate in the market for other borrowings. So, if the bond rates increase, it increases other borrowing rates and that is detrimental to the investments.
What government doesn’t realize that fiscal stimulus is good but it comes at a cost. However, in the election year govt often ignores the costs and focuses on populist benefits rather.
The article talks about the recent trend of increase in the corporate bonds as banks refuse to lend to the corporates. However, the author warns the lenders to be conscious while lending and not get carried away by the high yield.
Recently there has been increase in corporate bonds that gives returns of 11-12%, much higher then the deposit rate that provide 8-9%. As banks go risk averse, retail lending is the only option left for the corporates. Banks have been putting more money in govt securities as the interest rates decline resulting in higher yield and more profit in mark-to-market terms. Retail borrowing is also cheaper for corporates even after adding intermediation charges. Also, bank loans are at floating rate while retail lending would be fixed.
However, on the part of investor, s/he should not get carried away by the high returns and check the company fundamentals before lending. For companies like Tata Motors, the commitment stands doubtless but for small companies, it is possible that they may not be able to provide those returns. Lenders will eventually get the money back when the company goes bankrupt but that will be through a lengthy legal process. So effort costs count as well.
The article is in context of recent pub attacks in Mangalore and the aftereffects of it in terms of clash between Shri Ram Sena and women activists.
Sarees v/s Pink Chaddis is of course a strange clash of civilizations. The issue is the choice of two items as extremities of civilizations when actually both can go compatible to each other. Unfortunate thing is that with this incident, pubs are now elevated as temples of modern India while Sarees have been projected as symbol of “backward” Indian women. However, if the pink panties can become a symbol of protest against anti-women activists it would be a good thing as it cans serve as a panty-dote to the regressive tendencies.
But author, at the end, requests Mr. Muthalik and Consortium of Pubgoing, Loose and Forward Women (a community on Facebook) to keep Saree out of this clash of cultures.
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