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Finance and Investment Cell, SRCC interviewed Debojyoti Das, Assistant Professor (Finance and Accounting Area), Indian Institute of Management Bangalore. He is also the IIMB Young Faculty Research Chair.


1. What is your take on The Finance Minister’s ‘Bad Bank Proposal’? Is it a good decision to stimulate growth in the Banking sector?

It is a welcome move in the wake of the COVID crisis when the problem of stressed assets is intensifying. I believe that professional management of Non-Performing Assets (NPAs) would help in making the banking system a bit more efficient. At the same time, it would also help in taking off the burden from the shoulders of the commercial banks and let them focus on mainstream lending activities. In these respects, there is indeed a prima facie reason to support the initiative.


Nevertheless, certain inefficiencies might creep in the form of unchecked lending. The noted economists have expressed their concerns on the ‘moral hazard’ problem. The enforcement of compliance and vigilance measures to control such a problem could minimize the downsides of the proposal. Besides, I think implementing a similar model to the ‘Carbon Credit Trading’ could resolve the problem to a considerable extent. For instance, a tolerance limit of NPAs should be set for each of the banks based on some probabilistic measures. If banks could maintain their NPA levels below the tolerable limit, they may be incentivized by permitting them to trade the NPA credits with other banks. The success of this scheme can only be ensured when the recoveries and reconstruction of bad loans are materialized.


Simply cleaning the bank balance sheet may not withstand the core idea of the scheme. Stricter default norms and assuring adherence is the way forward. I am sure that the Government has factored in all these concerns while taking the decision.


2. Wouldn’t the Government’s decision to abandon the old 3% fiscal target of the FRBM, and opt for much higher deficits up to 2025 pose severe risks like high inflation and high interest rates?

Undeniably, the economy required a push to revive. Several leading economists have opined the need for a fiscal stimulus. Perhaps, the Government’s decision to peg the fiscal deficit is driven by the view to warrant welfare to households and businesses. The consequence of a particular action is determined by its attributable cause in the first place. We should look at the genesis of the impending fiscal deficit rather than simply being apprehensive about the outcome.


An unprecedented medical emergency like the COVID outbreak has exposed the fault lines in the healthcare setup of the country. The health system was clearly striving to tackle the rising cases due to facility constraints. The additional budgetary allocation in healthcare capacity development is of utmost importance through the lenses of socio-economic welfare. Further, the proposal to establish new healthcare institutions to combat emerging diseases is a futuristic initiative. The other areas of allocation include rural infrastructure development, economic corridors, and the defence sector. Importantly, there are no major changes in the taxation structure despite low tax collections due to stricter lockdown norms. Rather, the focus is on easing tax compliance, and some other benefits are offered to senior citizens and small taxpayers. To that end, I believe the focus on infrastructure spending would not only help to rejuvenate the economy, but the expected benefits in perpetuation would also deter the potential downsides of higher deficits.


Another important aspect is to understand the standing of the debt to GDP ratio (D/G Ratio). The current D/G ratio of India is around 69.04% which is below several developed nations and comparable emerging economies such as Brazil. It indicates the feasibility to leverage deficit financing to some extent. It is noteworthy that the fiscal deficit is estimated to be 6.8% of Gross Domestic Product (GDP) in the year 2021-22, which is expected to be brought down to 4.5% of GDP by 2025-26. So, there is no free-fall, and a check is imposed to recover the deficit right after a revival impetus. To cut a long story short, I would like to draw an analogy of how a kite works. Unwinding the string with a gentle push of the air would let the kite fly farther, and pulling the string tight after a while would help the kite go higher.


3. Considering the fact that cryptocurrencies are neither legal nor illegal in India, would you suggest individuals to invest in the same?

From the standpoint of legality, regulations are an ex-post phenomenon that tries to cope with the irregularities that are existent. In the past, there have been many instances related to money laundering, capital flight, and terror funding using cryptocurrencies across the world. The regulatory authorities in India have expressed their concern about these issues. Therefore, the Government is keen to enforce scrutiny on these currency forms via a legal framework.


In the current phase of crypto-exuberance, the value of cryptocurrencies is largely driven by lower risk-averse behaviour, which is an antecedent of speculative intents. I believe the investors are mostly aware of the extent of risk they are exposed to. I am not a proponent of parking funds in any form of investment that is contentious on several grounds. Nevertheless, as I mentioned, it all depends on the underlying motives of investments and individual risk preferences.


4. In your opinion, how important is ‘Data Science’ in the world of finance?

Unquestionably, the increasing role of ‘Data Science’ (DS), with the advent of technological progress, is one of the crucial advancements in recent times. The world of finance is no exception. In tandem with the current market trends, the financial industry has largely embraced its application in risk management, algorithmic trading and predictive analytics among others. The superior techniques are advantageous to decipher underlying stylized facts of the data. I believe DS tools are crucial to support and validate the instinctive feeling of the practitioners. Needless to say, the industry participants may now leverage complex data structures in their desired way as the possibilities are enormous.


Another important issue I would like to mention concerns the inclusion of the DS course modules in ‘Commerce’ education in India. As we all understand that “unequipped students lead to unemployed graduates”, the matter is indeed critical. Given the current scenario, it is indispensable to impart DS application-based skills, especially to the Commerce graduates. Commerce education at the undergraduate level in India is largely viewed as a conventional stream of study plagued with limited job prospects. The course curriculum consisting of DS modules is seldom, except for a few top-ranked Indian universities. A blend of financial knowledge with data and software-specific skills could be highly relevant in terms of employability.


5. What do you think is the most lucrative investment opportunity for the investors currently?

During the initial phases of the COVID-19 crisis, I always advised to prioritize the liquidity of investments or to hold adequate cash given the likely economic or medical contingencies. Further, investments in the health insurance plan to cover the treatment expenses of COVID-19 should have been one of the major areas of insistence. Since the equity markets have now started recovering from the impacts of the COVID-19 crisis. Investors with a flair to deal in equity markets can bet on steady growth trajectories. Nevertheless, the new signs of further concern in the form of new COVID-19 strains also necessitate considering hedging instruments in the investment basket. One such hedging instrument could be the investments in Gold, which has also been referred to as a safe-haven asset. Additionally, investments in low-cost Gold ETFs rather than bullions could be a good option to ensure liquidity and eradicate additional costs of storage and safety.


It is also worth mentioning that the skyrocketing values of Bitcoin during the COVID-19 crisis have lured the investor community greatly. Many financial scholars and practitioners are referring to Bitcoin as the ‘digital Gold’. But I have some concerns here, I look at Bitcoin as a speculative instrument rather than an asset given its potential downsides. First and foremost, the volatility of Bitcoin prices coupled with the risks of web heists and valuation guarantee defy one of the preconditions of being an asset i.e., “the store of value”. Moreover, how well Bitcoin might serve as a medium of exchange is a critical issue since it is not commonly accepted as fiat currencies or Gold. Investors with a higher risk appetite and speculative motives could always opt for investments in Bitcoin. Nevertheless, I think there is a need to critically evaluate whether the potential perils of investing in Bitcoin outweigh its benefits.


Another important aspect the investors must consider is the changing attitude of the citizens towards the environment and climate change concerns. A recent survey by the Boston Consulting Group (BCG) shows that the repercussions caused by the recent pandemic have heightened environmental awareness among the citizens. The report suggests that now people are more concerned to deal with environmental challenges and likely to change their own behaviour to advance sustainability. In the light of such findings, I believe the ‘Green assets’ such as Green/Climate Bonds and clean energy stocks could become suitable investment avenues in the time to come. Moreover, initiating investments in the ‘Green assets’ could channelize funds to the environment-friendly projects laying the foundations of a climate-resilient economy.


6. Lastly, would you like to give any piece of advice for the young finance enthusiasts?

I would urge the young finance enthusiasts to deepen their understanding of fundamental theoretical connotations or the ‘governing dynamics’. I always believe that theories are sacrosanct. A sound understanding of the underlying theories would always help a budding manager to establish the cause-and-effect relationship intuitively. Analysing a situation in the light of an established theoretical guideline might help to identify viable solutions in a structured manner. It is further essential to understand that the established theories or the ‘governing dynamics’ may not be necessarily available only within the domain of financial literacy. The researchers have shown that financial or market dynamics are shaped by cultural, behavioural, and geopolitical factors among others. Thus, it is also imperative to read and understand literature from the allied subject domain.


Secondly, a knack for tracking real-time business and tech news and reading financial periodicals might help the potential finance practitioners to understand the forces that influence the financial markets. It is vital to pay attention to the views of business leaders and analysts on contemporary business issues. Further, it is more important to decipher the underlying logic of their explanations and arguments. This might be of help to develop critical thinking abilities.


Lastly, I would like to focus on the significance of ‘contextual relevance’ while applying existing theories and prescriptions to a given situation. I think we need to appreciate that there is no ‘one size fits all solution’. Thus, the theories or the expert opinions originating from the developed countries like the US might not work well in an emerging economy like India. The governance mechanisms, institutional and legal infrastructure might not be similar across the countries. A critical evaluation of the business environment by focusing upon the similarity or differences in the regulatory framework could help devise tailor-made strategies.


The interview was conducted via email.

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