Indian Economy Recovery

Welcome to the 5th edition of our weekly musings!

In the weekly musings published last week, we discussed the stimulus plans of the US House of Representatives, failure of RBI’s MPC to contain inflation in its last leg of the 4-year term, and how the PSU banks have taken the private lenders route of raising funds via equities and other instruments. The economic relief plan of the House Democrats sailed through per the expectations outlined, however, the $2.2 trillion Covid aid bill won’t easily become law as President Donald Trump’s negotiating team of Republicans is pressing hard for a $1.6 trillion aid package with the Senate majority leader calling the $2.2 trillion stimuli “outlandish”.

The policy review meeting of RBI’s MPC was rescheduled on the backdrop of the pending appointment of three new external members as the tenure of existing external members ended in September. With inflation climbing above the targeted zone in the last two quarters, the new MPC is expected to maintain status quo by keeping the rates unchanged.

India’s Economic Recovery picks up Pace

The recent freight loading (goods transportation via Railways) data has given hope for economic revival as the Indian Railways clocked a handsome growth of 15.3% in transporting goods. Like auto sales, freight traffic is also considered a good indicator to gauge the macroeconomic performance of an economy, Earnings from freight loading stood at Rs. 9,896 crores, a rise of 13.5% year on year.

April-September 2020

% Change (YoY)

September 2020

% Change (YoY)

Freight (mt)

533.4 -9.02 102.2 15.35
Revenue (Rs cr) 50,171.22 -16.87 9902.92


Source: Business Standard, Tavaga Research

It was for the first time in the history of Indian Railways that it managed to cross the 100 mt mark in freight loading. This could well be on the backdrop of various incentives provided by the railways (tariff as well as non-tariff measures) and considered a sign of revival; however, sustenance is the key to achieve longer-term growth.

Declining unemployment in rural areas as well as restocking ahead of the festival season has led to an improvement in GST collections by the government. India did not only manage to achieve the pre-Covid levels but also surpassed the September 2019 collections. Like the uptick in freight loading, the sustainability of the green shoots in the GST revenue collection remains doubtful as it could well be on the backdrop of pent-up demand.

GST Revenue Collection

Interest-on-Interest Waiver on Government’s Cards

In a major relief to small borrowers, the government plans to waive off the compound interest or ‘interest-on-interest’ charged during the moratorium period. As per the affidavit filed in the Supreme Court, the government intends to extend this relief to personal loans (including education, auto, housing, consumer loans, etc.) and MSME loans up to Rs 2 crores.

As per the blueprint presented by the government, it does not differentiate between the borrowers who have paid the loans and those who have availed the moratorium. Further, the affidavit states that lenders won’t face the brunt of compound interest waivers and it is the government who will bear the burden.

While this move could bring cheer on the faces of small-ticket borrowers, it goes against the spirit and discipline of banking in India and sets a wrong precedent for customer behavior. Political slogans in the future might extend to providing moratoriums and waiver on compound interest on retail loans along with the usual farm loan waivers.

The government is yet to clarify the process of waiving the compound interest as the mode of payment and timing of compensation to banks will play a crucial role going forward.

Advantage Joe Biden post the first US Presidential Debate

President Donald Trump and former VP Joe Biden met on 30th September for the first debate before the US Presidential elections on November 3rd, 2020. Globally, the opinion was such that the debate was all about personal attacks and finally ended on a messy note with both sides failing to clearly highlight their agendas for the next four years.

According to a CBS Poll, a meager 17% felt informed and satisfied after the debate, while 83% found the tone of the debate acrid. While Trump failed to articulate the key policies he would implement in his second term, Biden failed to highlight his agenda for a Biden Presidency.

However, Biden managed to address some of his climate change initiatives and healthcare plans, thus giving himself a clear edge over Trump as overnight polls found the former VP to be the winner. While going into the debate, Americans had quite a lot of expectations from Trump as they predicted him to be the winner with a 47%-41% margin (Source: USA Today). In quick polls conducted after the first debate on 30th September, CBS poll found 48% chose Biden, 41% thought it was Trump, while the rest saw it as a tie.

Advantage Biden after presidential debate

In any case, the dollar is expected to depreciate in the near term due to a high US debt to GDP ratio and Fed’s resolve to keep long term rates near zero. As odds increase in favor of a Biden victory and a Democratic sweep, globally, the markets can turn more volatile until the results of the US Presidential elections.

Coming up in the Week:

  1. India PMI data – 6th October
  2. Earnings season to kick-off in India – 7th October
  3. US Fed Minutes – 7th October
  4. US Unemployment figures – 8th October
  5. Bank Loan Growth data – 9th October

Happy Investing!

Tavaga Advisory Services is the official partner for providing advisory services to TradeSmart clients
Tavaga & Trade Smart has issued this report for information purposes only. This is not an investment document.
Please refer to for disclosures.



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