Good time to revisit this thread now

On some of the parameters, things turned out better than what was then anticipated (1/n) https://twitter.com/Me_Predictor/status/1261925824032395264

Salaried upper middle classes seem to have withstood shock quite well. Though some job losses&income has stagnated,may be declined in some cases, overall not been much impact of Covid on aggregate. Forced savings, improving hiring trend in IT/offshoring all +ves for consumption

The rural rich farmer segment also did as expected/better than expected it looks like. However this may not be uniformly true for rural areas where consumption overall still seems to be somewhat weak

Large corporate also withstood the shock quite well. Low borrowing cost, good cost cutting, shift to larger players and formal players all benefiting them. Even weaker ones didnt really get into that much trouble

Banks and NBFCs- this segment did much better than even i anticipated- no doubt helped by forbearance. Though the last word has not yet been said, the write downs look extremely manageable, capital buffers in pvt entities have improved. For NBFCs, govt chipped in with help and

liquidity remains ample. With rates being low, good chance to absorb credit costs as well given ample profits before provisioning.

Ones that did badly:
Urban lower middle classes: Probably bore the brunt of job losses. Limited support from the govt. Highly leveraged atleast in pockets ( personal loans, mortgages etc).
Urban poor: Again badly , though govt support may have been ok atleast in some states

Both these segments also likely most impacted by rising inflation in food/fuel/some other services ,creating a double whammy

SMEs and self employed- probably highly impacted too => labour shortages, just the fact that lockdown may have impacted some of them much more than others( like doctors etc) but overall may be less than originally feared.

Govt support probably helped. In addition, wealth effects of rising stock markets may have also helped some of them at the higher end of the spectrum ( its purely anecdotal but many SME/ self-employed do dabble in trading/ markets IMO)

Now the road ahead: The rich, salaried middle classes are est placed to support consumption and they can be further incentivised to do so. Real estate, Auto remain areas where govt can intervene to offer some kind of consumption stimulus, tax rebates, interest subventions?

In Auto, may be something may be needed to improve affordability. I know I have earlier said GST is probably not the reason and might affect govt revenue disproportinately but cutting that seems the obvious choice. may be difficult to get states to agree though

At the very least, govt should stop putting additional regulations etc, which increase the cost of ownership

Apart from this, I dont see any other quick fixes around to improve the "balance sheets" of other segments. It will only be a slow grind from here on in.

For urban poor, urban lower middle classes and rural poor, their balance sheets & spending capabilities will only get fixed if their incomes improve. Some of this has been a problem for even the last 8-10 years, so dates to well before Covid though Covid might have made it worse

Two things might help, focus on likes of PLI, and focus on construction jobs. Former might finally help addition of more ppl into the middle classes, stagnation of which a problem thats been plaguing us now for several years. That is a LT solution though.

Construction jobs on the other hand might recover faster, especially if we get the rich and upper middle classes to spend on likes of real estate. And heavy infra spending can also help the urban and rural poor

I think the temptation to go for an urban NREGA type scheme should be avoided. Or ill -targeted cash transfers as stimulus. That will only increase inflation. Infra spending and incentivizing poor and PLI type schemes will take time, but better to stay the course on that

SMEs- export demand and ripple off effect of likes of infra spending should help. But overall no easy solutions here, they need to rebuild their equity, and that will come only over a period of time with growth and likely with improving property values

Cant think of much the govt can do here except may be taking on a bit of interest burden of SMEs on its own balance sheet, which will just help the deleveraging process faster.

Both for some segments of the urban poor and the SMEs, rate of interest is less of a problem than availability of credit and just demand in general. Even higher interest rates is something they can manage with the former two

Where LOW interest regime HOWEVER HELPS is to keep funding costs of banks and NBFCs low, which will help them write-off stressed loans faster. Then eventually banks and NBFCs will focus on growth imperatives ,risk appetite will slowly improve which will help credit to these areas

And LOW interest rates and perception of that continuing are definitely important for corporate capex to recover, which in turn will create jobs.

So despite a possible adverse inflation situation, RBI will have to do a deft balancing act.

And so govt'll have to do balancing act, between spending enough to stoke demand&spending bit excessively which will torpedo low rate regime,equally important for some of the things like improving housing demand,corporate capex and helping banks and NBFCs build up risk appetite

Luckily, things like incentivizing upper middle classes to buy homes, cars or infra spending may not be THAT costly in fiscal terms.

Therefore Aside from some political imperatives on farmers etc, and may be just some deft optics managing for the poor, temptation to go heavy on cash transfers or nrega or urban nrega should be avoided, especially as they will raise labour costs & dissuade investments

So overall i would say, not THAT much for the govt to incrementally do. Just stay the course. Right or wrong, they went with a certain strategy which did not involve that much spending. They could have done it differently with say some kind of jobs support scheme etc but....

perhaps for reasons like targetting, and maybe fiscal fears, they decided not to.

Now having decided that strategy, and going ahead with PLI, reforms, investment push, stay the course and dont try an alternate strategy which may defeat purposes of some of these

Besides, consumption of the poor etc matters less in aggregate terms while influencing aggregate economic outcomes. ofcourse there are moral issues on inequality and political optics, but do just about enough to manage that.

I dont think an NREGA or a PM-Kisan ever has outsized impact on consumption, even less so in a pandemic impacted world of uncertainity. Even the poor will spend only when they see sustained improvement in incomes and that will be only through jobs. Rest is just stop gap.

So overall, spend tactically and if that tactical spending can be coupled with good messaging and sentiment boosters, then the spending for that might be even lesser than required. Rest spend a little on managing political optics. Otherwise just stay the course!

External environment otherwise should be quite conducive. Trade deficit looks manageable, reserves are ample etc. Per se, that can help us run a higher fiscal deficit without worrying about financial stability etc. And though inflation might be high, chance of it

being persistent is IMO low in that environment. So no need to use rates as a tool to control inflation and screw up growth.

Good spending by households in US, Europe etc if pandemic tapers off will also indirectly help us with export demand.

One thing that will help if the pandemic is fully over through the end of next year is pent up demand for certain services: restaraunts, domestic tourism, more visits and shoppping at malls etc, cinema etc. Overall domestic consumption should be pretty good, that should also help