NILESH SHAH

The Economic Times - - Money -

Many pub­lic sec­tor banks have locked their cap­i­tal in in­sur­ance ven­tures. While some of their in­sur­ance busi­ness is do­ing ex­tremely well, some are not. They could liq­ui­date that as­set and get cap­i­tal.

De­mon­eti­sa­tion was a great idea, which had three plans. Plan A was a hope that there is black econ­omy in the sys­tem and all the cash will not come back to the bank­ing ac­count, that un­writ­ten cash will be avail­able to the gov­ern­ment for spend­ing and that’s how they will spend and cre­ate growth. The Plan B was that the gov­ern­ment has started to ex­e­cute is en­sur­ing that the money, which has been de­posited in the bank ac­count, have they passed through the tax net or not. So Plan A and B will help the gov­ern­ment get ₹ 50,000-60,000 crore ad­di­tional tax of what was ear­lier ex­pected. Plan C is also still pos­si­ble. In the 1980s, China and In­dia were vir­tu­ally of sim­i­lar size, per capita GDP. To­day, they are five times big­ger than us. Their credit to GDP ra­tio is sub­stan­tially higher than In­dia which al­lows them to cre­ate a higher GDP. Why we couldn’t cre­ate credit is be­cause we were ob­sessed with keep­ing money in cash and gold. So this took money out of the bank­ing sys­tem. With de­mon­eti­sa­tion, about ₹ 5 lakh crore has shifted from ti­joris to bank ac­count. Po­ten­tially with mul­ti­plier ef­fect it can cre­ate ₹ 35 lakh crore credit, with which you can cre­ate ad­di­tional GDP.

By the year-end the in­dices could head higher from here. We are pos­i­tive on the ma­tu­rity of the do­mes­tic in­vestor, who has put more and more money in ev­ery down­ward cor­rec­tion. For a mean­ing­ful cor­rec­tion to hap­pen, some­thing should hap­pen that the mar­ket is not aware of to­day. For ex­am­ple, if Dok­lam ends up into a far big­ger is­sue than what the mar­ket is pric­ing in to­day then there could be a cor­rec­tion or if the Fed de­cides to go to Paul Vol­cker era then there could cer­tainly be a mean­ing­ful cor­rec­tion in In­dian mar­kets.

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