Bank Recapitalization. Some Scattered Thoughts on Efficacies.

If we are still thinking of Demonetization and GST as speed breakers to economy, which entirely isn’t false, the what could one say of Bank Recapitalization? Is this a master stroke of sorts to salvaging sensibility before the present ruling dispensation of BJP is red-faced before 2019 GE? Or, is Bank Recapitalization is all about safeguarding the dismal dip in the growth and especially so when the world economy is on an ascent, despite warnings of a Minsky Moment? What are the challenges to Bank Recapitalization and how would these face up to the challenges of the NPAs and PSB consolidation? These are pressing questions that simply cannot be answered by a political will getting catalyzed, but requires a deeper economic drift and traction.

So, if Bank Recapitalization to the tune of Rs. 2.1 lakh crore infusion into the public sector banks were to come through, and which it would, the budgetary allocations are a mere chunk, while raising money from the market too isn’t that major a factor. The roost is to be ruled by recapitalization bonds, or recap bonds, in short. What then are the challenges of this methodology?

Technically, in the current context, there is really not much of a risk in issuing recapitalization bonds. The outside risk of recapitalization bonds is that this move may tighten liquidity in the system if all the surplus liquidity in the banking system goes into its capital. However, since recapitalization bonds are callable in nature, this risk should not be too great. Also, the debt markets are now sufficiently deep and broad and can support the funding needs of the India corporates and hence that is unlikely to be a major issue. The only concern is that rating agencies globally will look at recapitalization as a form of off-balance sheet financing, which does not give them too much comfort. Many rating agencies look at such bonds as a means of raising debt that is not visible in the fiscal deficit. This lack of visibility is what might be the hurdles race for the government. But, then is there a way out?

Alternatively, what if the government were not to recapitalize? Then, it can look to postponing its adherence to Basel III from 2019. But that will be seen by global markets as an admission by the Government of India that it does not have the liquidity to capitalize its banks. That may not go down well with foreign investors. Under these circumstances, infusing capital into the banks through the issue of recapitalization bonds may be the best option available!

What are the main economic ramifications as a result of these? The government’s plan at recapitalization would have little impact on its target to shrink the shortfall to 3.2 percent of the GDP because the IMF rules classify such debt as “below the line” financing. Only interest expenses would be added to the fiscal deficit, and this is estimated at about Rs. 90 billion or 0.4 percent of the total budgeted spending. Technically, however, India’s accounting rules require the bonds to be included in the budget deficit, so the government would reclassify them later as off-balance sheet items. The government is yet to disclose the details on the structure and pricing of the bonds, as well as how it would raise the rest of the cash. These will determine if there is a liquidity squeeze. If the measures do revive credit growth, inflation may accelerate as well, limiting scope to lower the policy rate. When it comes to the question of who would buy these bonds, the answer is probably banks themselves, who are flush with deposits following the note ban. Banks can then cleverly invest these funds in the recap bonds which will then be ultimately routed back as equity in the system. This would ensure that the bond market would not be impacted by such a large issuance for the private sector issuers.

Now, these are serious questions questioning some of the advocacy groups have to come to terms with. For one thing, in my opinion, mergers and acquisitions to consolidate PSBs are to be put back on the back foot, for recapitalization has at least punctuated to for the time being. Second is credit growth, or more precisely credit demand, which would be induced with an energy following this exercise. Third, and most importantly, the lending might gain velocity, but only after April 2018, since banks would require a correctional facility on their balance sheets. This lending would somehow be channeled towards infrastructure giants like Sagarmala and Bharatmala with a key difference being that the Government might prioritize Engineering, Procurement and Construction (EPC) over Hybrid Annuity Model like the PPP for the obvious risks associated with the latter subsequently feeding into the NPAs and/or stressed assets. 

Advertisement

Disapproval resolution to test Government in Rajya Sabha.Why or Why Not the Justification?

My reflections are based on the views expressed by the Economic Times yesterday, which a friend of mine was kind enough to share.

From the news, the blurb for which is as under:

The government is up against an unexpected hurdle in the Rajya Sabha on the bill for scrapping Rs 500 and Rs 1000 notes. While the ordinance promulgated for extinguishing the notes was replaced by the Specified Bank Notes Bill in the Lok Sabha on Tuesday, the Opposition is set to exploit a procedural opening to derail the government’s efforts in the Rajya Sabha…..But the twist in the tale came at the Rajya Sabha Business Advisory Committee meeting on Tuesday, where Congress MP T Subbarami Reddy sought time to move a resolution “seeking disapproval” of the ordinance itself. The BAC has accepted this after his party backed him along with other Opposition members. This is likely to be taken up together with government’s bill slated for Thursday….

Take: 

Legally yes, this is a possibility. Practically no, for the costs incurred would be humungous. Passing bills or rather introducing them as money bills is a commonwealth practice, unlike how these are treated in the US, where revenue bills are equally influenced by representatives as well as the senate to a point of governmental shutdown due to non-passage of budgetary legislations. The whole of the commonwealth is lacking on this equality accorded to the upper house, whereas the only couple of checks to safeguard how the Raja Sabha isn’t relegated in legislative duties as far introducing a money bill is considered is firstly in the definition of money bill, which has 7 provisions, of which “only” any of those provisions would meet the criteria of a money bill; and secondly the speaker of the lower house needs to show extreme discretion in consultation with secretaries of both the houses before declaring the bill as money bill. The latter provision installs political neutrality in the speaker of the lower house, which incidentally fails in this scenario, but could also have passed if the secretaries were listened to. Although, the last part in the previous statement is a mere speculation to say the least. 

Apart from this parliamentary procedure, regaining legal tender for the old denominations is a costly affair, for exchange nodes would have evaporated by then barring the zonal offices of the RBI, which as it is would continue acting to accept these old denominations until 31st March. For such a legal tender to become valid for a month would turn banking system inside-out throwing restocking at branches out of gear. Though BAC has accepted this resolution, opposition numbers in the upper house are already heading towards a changing equation with the current opposition still maintaining an edge, but with the 5-states poll, BJP might head for a improvement in numbers rollover. Congress-backed resolution would undoubtedly face flak from the ruling dispensation in the upper house in the form of disruptions and once it is recess time, this resolution going through would find a harder patch to clear. All I could say is expect a tremendous amount of lobbying by the BJP to nullify oppositional gains, if any.  

 

Musings on Financialisation of Capital, Bureaucracy, Fascism and State PR

When one says Finance Capital is one expression of capital exerting its pressure socio-politically…I wouldn’t ever disagree on it. But, the way I am seeing this is missing the wood for the trees. Why? Because, socio-political affects are affects of the larger scheme of things we associate with finance. This is a trickle down effect (not in the strictly economic sense of the phrase). Finance Capital is becoming a controlling tool through increasing concentration and centralisation of capital in the hands of large corporations, cartels, trusts and banks. Not just that, these supranational entities are also diversifying into fields with intense financial intent thus bringing to effect financialisation of economy the world over. Once this is conceptualised, the socio-economic impacts follow. I am looking at a rigid top-down approach here.

On to Bureaucracy. Why do I say it is impersonal? This is an idea imported from Max Weber, probably the father of Bureaucracy Theory. Bureaucracy differed from other types of organisations by its nonlegal forms of authority. Weberian take was inclined on its being technical proficiency specialised expertise, certainty and continuity. The genesis of it lay in money-based economy, the forerunner to capitalism in its variegated disguises and attendant need to ensure rational, impersonal and legal transactions. So, that is the combination spoken about that has got inverted from its traditional schemata. Also, there is an accompaniment of historical roots in the statement.

Fascism: it is absolutely necessary to insist on this essential aspect of the definition of fascism, for one can scarcely understand the emergence of the fundamental concepts of fascism and of the Fascist philosophy and mythology if one does not recognize, at the same time, that it arose from an originally Marxist revolt against materialism. It was the French and Italian Sorelians, the theoreticians of revolutionary syndicalism, who made this new and original revision of Marxism, and precisely this was their contribution to the birth of the Fascist ideology. Zeev Sternhell has amazingly outlined the history of Fascism in his “The birth of Fascist Ideology: From Cultural Rebellion to Political Revolution“. Sternhell further says, ‘From the standpoint of the temporal structure of the project, fascism is a particularly radical form of conservative revolution.

Some of the traits that will be offered by a populist leader who affirms fascism is a rebirth of a strong National Identity, making a nation strong again, reviving culture, industry, education, and the middle-class values that have sustained it. It is always a populist authoritarian movement that seeks to preserve and restore a former glory to the nation as well as military, social, and religious values based on strong patriarchal roots that center on community of nation, race, and faith. It will treat any opposition as it sees fit to the point of utter abandonment of the norms and laws of the land, seeing in them hindrances that must be circumvented under dire emergencies, etc.. It will seek to cleanse the nation of foreign and domestic threats it perceives as outside the mainstream socio-cultural order it seeks to revive and promote. It will seek to revive an organic wholeness and totality, and expunge and expel those it perceives as outsiders: immigrants, refugees, or aliens in its midst. It will begin by attacking the insiders or establishment who it perceives as decadent, corrupt, and a parasite upon the body of the Nation as a whole. It will also incarcerate and expunge the poor and poverty stricken, enforcing codes of distrust and victimization. It seeks only to bolster up the vast majority of the middle-class workers of all diverse forms. From this point of view, BJP’s rule is perfectly congruent with fascism.

On the Adanis and Guptas, why is it not a collusion of corporate and state power of the past? It is, but with a vectoral shift in axis. The Fascist revolution sought to change the nature of the relationships between the individual and the collective without destroying the impetus of economic activity-the profit motive, or its foundation-private property, or its necessary framework-the market economy. This was one aspect of the novelty of fascism; the Fascist revolution was supported by an economy determined by the laws of-the free-market ideology. The shift in the axis lies precisely in the prerogative the financial capital has over decisions political. The shift in the axis has inverted the priorities of politics and capital. So, the Adanis and Guptas decide the politics rather than the other way round. This is a journey back to some of the basic tenets of political economy, which were seemingly eroded in the first phase of neoliberal era, thanks in large part to Thatcherism and Reaganomics.

Police before the state: This is a complicated relationship and is best understood if one were to dissolve the colloquial use of the word police. Allow me another recourse here to the French Political Philosopher, Ranciere, who puts it most aptly, “I do  to identify the police with what is termed the state apparatus. The notion of state apparatus is in fact bound up with the presupposition of an opposition between state and society in which the state is portrayed as a machine, a cold ‘monster’ imposing rigid order on the life of society. This representation already presupposes a certain ‘political philosophy’, that is, a certain confusion of politics and the police. The distribution of places and roles that defines a police regime stems as much from the assumed spontaneity of social relations as from the rigidity of state functions. The police is essentially the law, generally implicit, that defines a party’s share or lack of it. The police is thus first an order of bodies that defines the allocation of ways of doing, ways of being, and ways of saying, and sees those bodies are assigned by the name to a particular place and task; it is an order of the visible and the sayable that sees that a particular activity is visible and another is not, that this speech is understood as discourse and another as noise. Policing is not so much the ‘disciplining’ of bodies as a rule governing their appearing, a configuration of occupations and the properties of the spaces where these occupations are distributed.” Therefore, by this logic the latency of police’s requisition for running the state is guaranteed. And, do we see any other way, if policing is extended to the notions of ‘moral policing’? I bet not.

Politics as the last resort of scoundrels will defeat the entire purpose of this response, and evidently, there is a strain of polity running throughout this response. Moreover, communication theories across generations have believed in media as the message and politicians of the present-day ruling regime are dramaturgists precisely in their compositions. We have had numerous examples to prove the point in the last one month or so.

Why do I call the Left academicians and practitioners idiots? Substantial segments of the left are in danger of allowing their movement to degenerate into a trite, self-indulgent counter-culture, in which an angry anti-establishment posturing conceals a lack of a positive political programme, and obviously nothing to say about the economic programme. Have we forgotten about the frittered opportunity during the 2008 crash? Globalise Resistance is one of the most visibly popular left-wing campaigns, defined by what they’re against, not what they’re for. Many people on the left are far too ready to draw an artificial moral equivalence between true tyrannies overseas and the very real but usually much milder moral failings of their own leaders and institutions. This is perpetrated by academicians and practitioners, and I am speaking of a very personal set of experience here. And still nothing seems to have changed.

Techno-politics isn’t really a slippery terrain, and for a change is one way the left can bounce back with. Humanity is being processed as mindless organisms (i.e., through processes of de-education, cultural amnesia, de-programming, etc.)  in a system of normative practices on a global scale that seek to install an ethos of domestication in a grand safety system to secure its own inhuman ends. This inhuman core is constructing secure, comfortable, and hedonistic bubbles of imprisonment that will allow it to design and further its own programmatic operations. Most of all through the pacification of the human species, and a controlled or modulated form of work and leisure; attenuated by the dictates of a global hierarchy of corporate capitalist institutions, no longer bound to ideological systems of a democracy, communism, or religious practice: the nexus of encoded cultural references that bind us to ethno-nationalists agendas, all the while seeking to envelope us in intelligent hypermedia reality machines and systems that will allay our fears and graft us into their own secret agendas of power and dominion. This is a scary proposition talked about.

There is no doubt in me when I oppose Industrial Corridors, and why Shouldn’t I? But, by electronic corridors, I mean are trading systems becoming the nerve centres of financial capitalism, say for instance, High Frequency Trading, HFTs in short. These are algorithmically powered and somehow dehumanistic by being capable of the pillars of the Fourth Industrial Revolution. One could look at the recently held World Economic Forum, where this topic was largely thrashed about. Yes, there are political ripples created against it, but as a personal friend of mine who was single handedly responsible for launching the #occupymovement told me, “such ripples are minute for they lack steam to bring on the alternative voices into a robust solidarity against corporatism.” For obvious reasons, I cannot reveal the name of this person. BTW, she is a hardcore neocon, right now. Strange, but true.

Electronic knowledge turning into digital ash is a reference given to surveillance technologies, the answer to which lies in sousveillance, but then do we have have enough resources. Sadly, in our country, the answer is a resounding no. During the cold war, East Germany was the most infamous surveillance society, but the shift is palpable to more advanced democracies including the upcoming economies. China is a bizarre case still.

The other two intervening points are largely agreed to, and thus I won’t venture there. On me being a socialist, the original writeup said, sciolist, a concert that talks of superficial pretender of knowledge. The words appear same through spellings, but are vastly different. On whether I am a socialist in the Marxian sense, I’d be short here: NO.

Socratic irony is a particular device often used in rhetoric in which one person pretends to be ignorant about an issue to lure the other person into explaining it. In a debate or argument, for example, two people may hold differing points of view about a particular subject. One of the two participants may then pretend that he or she does not understand an important aspect of the subject, and ask the other person to explain it. As the other person explains it, the first participant then comments on weaknesses inherent in the other person’s argument and has used Socratic irony to make him or her reveal them. The left needs it, as the right is weak in rhetoric, maybe, or not. But it is required.

State as a PR firm is necessarily a naive understanding of state, but fits the present-day context. Though, I must admit if it was made to look like a naive understanding. Public relations and state have been two firmly entwined concepts since the beginning of recorded history. For evidence from ancient times, take a look at Aristotle and his schools of rhetoric that taught the art of persuasive communication. In more recent times, the work of the man commonly thought of as the father of modern day public relations, Edward Bernays, and his belief that public relations is an art applied to a science provide a clear connection between the two.

To pay the piper is to pay for the dire consequences. It only highlights the despair I referred to. This does end it on a bleak note.