PM Says Market Collapse is an Opportunity; A BIG IDEA to Encash It

In the context of global market collapse, Raghav Bahl suggests a BIG IDEA for turning the crisis into an opportunity.

Prime Minister Narendra Modi waves during laying of the foundation stone of four-lane Patna-Buxar road. (Photo: PTI)

I will keep this short, simple and bold (literally, in the font). Because BIG IDEAS should not be buried in sands of verbosity; they don’t need to be caveat-ed or qualified.

Big Ideas don’t need to be hedged with alternatives. They just need the courage of conviction, to be done. Implemented!

I am also keeping it short because I want Prime Minister Narendra Modi and Finance Minister Arun Jaitley to read this in spare moments between meetings.

Turn This Crisis Into an Opportunity

Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan.(Photo: Reuters)

What can India do to convert the current global market collapse into an unprecedented opportunity for itself?

Remember, oil prices are in the $40s. This could give India a windfall gain of Rs 2 lakh crore in the next 12 months, and perhaps another Rs 2 lakh crore in the following year, if China’s economy stays weak and American shale oil production stays strong.

Many claimants will try to grab this trove of Rs 4 lakh crore. An extra Rs 25,000 crore for health? Don’t. Another Rs 25,000 crore for affordable housing? Don’t. How about Rs 50,000 crore for higher MSP for foodgrain? Don’t. You’ve got to give it for education, right? No, please don’t.

Instead, here’s the Big Idea:

JUST SHOVE ALL YOUR OIL SAVINGS OF Rs 4 LAKH CRORE TO RECAPITALISE PUBLIC SECTOR BANKS AND RESCUE THEM FROM A MELTDOWN.

The Big Idea

Public sector banks need to be recapitalised. (Photo: Reuters)

This is how it will play out:

• India’s public sector banks need Rs 8 lakh crore in equity capital; otherwise, we are staring at the kind of systemic collapse that felled America after Lehman & AIG went bust in 2008
• Public sector banks could be sitting on nearly Rs 4 lakh crore of bad assets, which is the dark hole into which India’s economic future could get sucked; and because of this burden, banks are not lending money to new projects, further stalling growth
• But if Rs 4 lakh crore of “oil equity” is piped into the banks’ balance sheets, they will come alive, kicking and sprightly
• They could issue another Rs 8 lakh crore of non-voting and voting equity to external investors, while still keeping government control at 52 per cent
• Rs 12 lakh crore in new equity would allow them to write down, or sell the very bad assets, and still be left with enough equity to create Rs 50 lakh crore of fresh credit in the economy
• Now persuade Governor Rajan to cut interest rates in two tranches of 50 basis points each
• Just imagine the investment and demand explosion in the economy, if banks get a clean balance sheet, credit expands by Rs 50 lakh crore and interest rates are slashed by 100 basis points

In one fell swoop, India’s economy will begin the hard climb back to prosperity. It shall become a beleaguered world’s envy. And finally begin to exploit its true potential.

So Prime Minister, please just do this. Your IAS secretaries will give you a million reasons why it can’t be done. Please close your ears to these sounds of despair. Just have supreme confidence in your own instincts and the power of transformational ideas.