Podcast: Turbulent times - RBI thrives, Fed fumblesPodcast: Turbulent times - RBI thrives, Fed fumbles

[podcast]

 

Markets are slaves of earnings and liquidity. Liquidity has taken a front seat after the coronavirus outbreak. At first, central banks across the world increased liquidity by cutting rates and governments gave out freebies to help their populace live through the pandemic. Then the after effects of increasing liquidity hit - increased inflation.

Now, the same banks are sucking out liquidity by increasing interest rates to counter inflation. The looming after effect of increasing rates is the "r" word that is too pious to speak outright. Central bank behaviour affects us, and our investments, and to understand this better, we have to see how they work.

In this podcast, Deepak & Shray discuss the two central banks that impact us the most - RBI and Fed (US Federal Reserve System). What makes this podcast interesting is that we are looking at everything from the lens of who does better - Fed or RBI?

Refer to the show notes to see the wide range of things discussed and start listening.

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Show notes & references:

02:00 - Why RBI will buy dollars to keep the rupee from appreciating?!

Refer: What the Fed's Big Balance Sheet Unwind Means for Markets

05:00 - What happens when RBI sells dollars?

07:00 - How does it control the liquidity of the markets?

14:00 - How have banks run out of liquidity?

17:30 - If banks need money, why don’t they increase their FD rates?

“Government is now a better bank than all banks. It’s also safer”

19:30 - RBI has taken out liquidity, you want to protect the status quo now. How does RBI do it? What are the consequences?

“RBI owns 3X more of US government bonds than it holds Indian government bonds. But things are changing.”

25:00 - But is the FED doing now?

26:30 - The interplay of treasury and Fed in the US government monetary environment

"RBI hates to buy government bonds because it knows the government is fiscally irresponsible. The US would buy their govt bonds knowing that their government is even more fiscally irresponsible."

28:30 - Mortgage backed securities and agency guaranteed debt.

“FED reduced their balance sheet by ~0.5% while RBI has already reduced the balance sheet by almost 10% in the same period”

35:00 - How will increasing interest rates impact different sectors & industries?

37:00 - If US interest rates go to 4% it will impact India and the world

38:15 - What makes India be in a bright spot as compared to the west?

43:30 - UPI is 10X the size of credit cards in terms of transactions. It’s massive.

47:00 - We have screwed up much earlier and recovered. West is starting to experience the fruit of its irresponsible policies.

“We might just be the single largest self dependent economy that’s worth investing in right now. With a local market which we have mostly given away to foreign players.”

53:00 - Domestic investments in equities by Indian investors have absorbed the highest ever FII selling spree.

56:00 - Our neighboring nations are falling apart mostly due to foreign dept - isn’t that a concern for us to open foreign investment?

“If you don’t have the freedom to fire people, you won’t hire them at all. That’s how human psychology works”

01:02:30 - Summarising where India is right now in the economic scene

“If we don’t screw up, we will do really well. Because the world seems to have screwed up.”

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Transcript

Intro: Hello and welcome everyone to the Capitalmind podcast. If you'd like to know more about us, visit Capitalmind. And if you'd like to invest with us, do visit Capitalmind Wealth.

Intro: This podcast is for informational purposes only and should not be relied upon as the basis for investment decisions. Clients of Capitalmind may maintain positions in the securities discussed in this podcast.

Shray: Hi everyone and welcome to the 53rd episode of the Capitalmind podcast. In today's episode, Deepak compares the responses of the US Federal Reserve and the Reserve Bank of India to our respective inflation and economic challenges. We talk about how the RBI has systematically removed nearly eight lakh crores of liquidity from our system. How India has successfully navigated the loss of nearly two lakh crores in FII money with a relatively minor stock market correction. How the Fed has still to get started on its balance sheet reduction in any meaningful way and what that might mean for the months ahead. Why India's digital infrastructure is a source of optimism and bullishness about the Indian economy. And how India is well positioned globally at the moment and what steps we can take to make the most of this once in many decades opportunity. Deepak as instructed by you have done my homework and I listen to the podcast by I think Joseph Wang was his name, the Fed Guy blogger. He did it with odd lots, the Bloomberg company. And what I'm really struck by is just how different the tenor of the conversation is in between the US and India. So I think the Fed seems to be in the very initial stages of tightening in the US. It's only started with interest rates if it's even started that properly. And the RBA, according to you, has already done a lot of the hard work and we've already done a lot of this and we're on this cycle. So can you sort of contrast and compare where both countries are on this?

Deepak: You know, say that's actually quite fascinating because that block, that particular podcast itself triggered in me a lot of thought process. So India, if you look at the way India is in the US, is structured very differently. Both these countries, India and the US had expanded their balance sheets through COVID. Part of that expansion came in in India, at least a certain part of that was involuntary. A lot of dollars came in into India and the RBA bought dollars. When the RBA buys dollars, the balance sheet asset side of it goes up and prints rupee, so the library side of it goes up as well. Rba as balance sheet expands, it went from I think 45 lakh crores to 55 lakh crore roughly or a little more than that. So it expanded quite a bit. They took in more than 100 hundred and $50 billion that came in into their balance sheet and expanded. Now the US started talking about tightening and all of these things only after Fab this year. That's because they decided that inflation was not transient and whatever they said it was. But meanwhile, India's RBI had already started to contract its own balance sheet. That's because in India are balance sheets. Expansion and contraction at the RBA happens on a little bit of an involuntary basis compared to the Fed, which can kind of decide when it wants to do it. Now India can also, but India typically doesn't have a choice because otherwise if a lot of dollars come in and they don't buy dollars, the rupee will appreciate too much.

Deepak: The rupee will reach a point at which our exports suffer too much. So they want to keep this in a kind of a band. So typically the RBA will buy dollars to arrest the rise of the rupee or and therefore the other side. Now what is different this time is usually when rupees leave India. Now they started a fire start selling roughly in October last year from that time to now, which is about eight or nine months, we're talking we're in the early stages of August 2022. So at this point it's been about eight or nine months since we've started seeing the sales of our FIIs. They have sold a fairly large amount, about 200,000 crore worth of rupees and some of the tools much of that money has left 200,000 crore rupees has been converted to dollars and taken out of the system. Rbi And apart from this, probably be a bunch of other things. We run a current account deficit, there's a bunch of other elements maybe, you know, of the order of 40 or $50 Billion a year that any way leaves India as part of the current account deficit apart from that's about $2,025 billion of fire exits and so on. This has resulted in a an outflow of a fairly large amount of money from India. So RBI, if it were to not allow not spend its reserves, would have let the rupee depreciate. This was the standard way of operation in previous years. Let the rupee depreciate somewhat.

Deepak: So in 2013 we saw the rupee go through to 68 after it was 45 and ₹50, a 30% depreciation in a very short time. And then of course, the corrections happen. This time the RBI said no way, and there was a good reason for it to say no, we will come to that. But what RBI did is it sold dollars and as it sold dollars, it was taking in rupees. Now we've probably discussed this in another podcast, but when the RBI takes in rupees, those rupees go out of circulation. Technically, I five printed them. It's like me buying back my own shares. Once I buy back my own shares, those shares don't exist anymore. The rupees don't exist if they come back into the RBI and therefore RBI is balance sheet contracts. Rbi balance sheet is contracted almost as much as 800,000 crores of liquidity has vanished from the system over the last eight, nine months. Of course, recently some I'm talking about the last one week we've seen some increase in liquidity coming back. But most of this has happened because of dollar outflows in general. We've also seen that the RBI therefore could not really. It's on balance in the sense that it had to. It had to protect the rupee, so it had to contract its balance sheet, RBI balance sheets. When they contract, they create a different phenomenon. Now, what happens when RBI balance? This is all like central banking. It is very boring stuff. But hear me out.

Deepak: I mean, it's sad, but this is like it's like, you know, looking at how a sausage is made. It's ugly, it's boring. But sometimes you need to know just to in order to appreciate the craziness of this whole thing. So when the system comes in place, banks are the only ones who talk to the RBI. Rbi does not behave, deal with you and me, other than when it prints rupee notes and gives it to us. And then even then we talk to banks. But banks, when somebody has to sell the rupees and get dollars, they go to their bank, their Indian bank. The Indian bank then says, Well, I'm going to try and put this order on the currency market, which is a market that where you can you can do a quote where you can say, well, I want to sell so many rupees and buy so many dollars. Now, looking at the order magnitude, the sells and the buys, the RBI itself will operate in the same market with the banks and say, well, if you want to sell rupees and buy dollars, I have dollars, I'll give it to you. Because if I don't, you will you will trade at extreme prices and the rupee will depreciate too much. So I would rather that you go through me, so I will control it. So in a sense, RBI becomes a participant in this market.

Deepak: Are we are therefore provides the required dollars and at the same time takes away the required represents a very complex model that keeps happening. Rbi therefore controls this liquidity. Now what happens is the banking the bank has, therefore, you know, it has a customer who has taken who had rupees with it and as deposits, obviously it's in a current account or something like that. And they have taken that current account money and given it to the RBI and the RBI has transferred dollars. The bank can't keep dollars or dollars sitting in exchange, you know, in a bank account somewhere in the US. So the bank effectively loses that deposit, right? It may make a certain field of it, but it technically loses the deposit. This is where it gets interesting. What happens to the bank then? Now, typically in our system, the RBI has printed so much liquidity in the last two years that every bank had excess liquidity. That means they had so much money they didn't know what to do. They didn't have to go raise deposits, which is why deposit rates were very low. But now those banks which have excess liquidity are seeing that liquidity vanish. Some banks who have excess liquidity may continue to have them. Some who had less excess liquidity will might start seeing a deficit of liquidity in the sense they might say, listen, I don't have any money anymore.

Deepak: Can I go bought. So the when you take a system and you contract the central bank's balance sheet, it's very difficult to control where that contraction impacts you. Now, you had 800,000 crores of extra reserves, what we call reverse repo banks were placing reverse repo with the RBI. There was order of 800,000 crores. Now this as a banking system means that banks don't need deposits. They have fairly reasonable amounts of liquidity. They are only constrained by their own capital. And banks are banks are not in banks have not been expanding credit meaningfully till about three months ago. That means they were growing at 6%. Growing at 6%. Has this complex thing that says, well, if I lend you 100 and you paid seven and a half, 8%, which is typically the interest rate, you would pay 8% on it. You know, you should have paid me back 108. I mean, you would have paid me back ₹8. And I'm assuming that you'll be able to borrow that ₹8 that you've paid me back or you or somebody else. So my credit should expand at least by 8%. If I'm not expanding credit by at least the interest that I'm charging on those loans. My credit world, India's credit is actually contracting, not expanding. So because credit growth was 6%, India's credit was actually in. It's not expanding in any meaningful way. So banks didn't need capital.

Deepak: Oh, sorry, banks didn't need the money and they didn't need capital also because their capital was sufficient for the kind of loans they were giving out since they didn't need the excess money. Most of this money was stored as excess reserves without where if banks were lending there in a very big way, it would not be so those excess reserves, it would be actually bank capital. That would be kind of it would be like what is called a CRR. And all this is just technical terms, but essentially what is reverse repo is money that lies around in this quasi banking system between the RBI and the banks that is not being utilized for credit. Now, this may be very high excess reserves with SBI, but very low excess reserves with HDFC because maybe HDFC lending more SBI is not. So when a foreign portfolio investor goes and gives tells. Hdfc. Listen, I have, I have just sold some shares. I have received maybe what I don't know, 25,000 crores. I need to take the 25,000 crores out of the country. Please give me dollars. Rb HDFC Bank does a deal with RBI gives RBI the 25,000 rolls. Hdfc now loses $25,000 deposits. It has to make up these deposits in some way so it might go and start borrowing from the system. Now remember, there was excess liquidity. Banks didn't need to borrow, they didn't fixed deposits.

Deepak: Suddenly, with the liquidity gone or liquidity removed, banks deposit system has possibly come down. This is where it becomes really interesting because HDFC as a bank might choose to borrow from the banking system and therefore is willing to pay higher rates because it needs the money. Some other bank is saying, listen, I have excess money, I'm putting that excess money with the RBI. So you have a combination of these two systems. This happens when the central bank withdraws liquidity simply because the liquidity can come out of the banking system or it can come out of excess reserves. It's one of the two always. Now, RBI has roughly sold like around $100 Billion of USD. This is partly perhaps it reflects partly in the total amount of reserves they had, which includes some of the forward exports. They probably sold about 60 billion of actual dollars and about 40 billion of forward exposure that they were willing to convert to dollars at some point. But they kind of cancel those contracts because they want to reduce the liquidity pressure. The banking system, which was 800,000 crores positive, has had almost reached a point where it was in a deficit when there was a surplus in the banking system that was placed back with the RBI. It's not been in a deficit since demonetisation in any meaningful way. So it's actually when the system is in a deficit.

Deepak: Pre-dating demonetisation banks would be net borrowers from the RBI. There was a repo. The report was always bid every day in a certain way. The repo system has been shut down by the RBI since COVID. The reason why it has, or the concept why it has been shut down is because banks were not borrowing from the RBI at all. So I said, why should I create a repo system? But last week on or this week on Monday, maybe it was last week. So there was a variable rate repo auction for the first time in a really long time and banks bid 1.5 lakh crores for it. That means they were willing to borrow 1.5 lakh gross for the repo is only for 50, 50, 50,000 crore. So they only got that much. And interestingly, the interest rate because there was so much demand for this money, banks paid 5.14% for what was like a 14 day repo loan. To give you an example, how crazy is this? And this is you know, this is interest rates going up across the board in the system. Rbi's repo rate is actually 4.9%. I think they could offer of as much as 5.15%, but they offered 5.14. It's close to the maximum limit that they could use to borrow in the sense. So that means it's not like it's a one timer, it's a small amount and all that stuff.

Deepak: It's really something that bankers are worried about and therefore they're paying a lot. If they put money into reverse repo, which no longer called reverse repo, it's called a weird thing called SDF. Now they only get one 4.65% this variable rate repo window and you know, which is our reverse repo window, which is where banks were parking excess money with the RBA. That still does have some because what happens is that a window of like 14 days, you have to borrow, you have to give money to the RBA for a minimum of 14 days. So in the middle, if you need liquidity to go, borrow from the repo window. All this is very complex, but it comes down to only one thing. Interest rates have risen. Interest rates have risen in India across the board already the RBA has tightened. Already the RBA balance sheet is already contracted to the order of nearly eight or 9%. That means whatever it was, it's come down by eight or 9% already and the interest rates have risen so much that something peculiar has happened. Banks don't want to raise deposit rates and I know you'll ask me why would I'll come to that? Banks want to raise deposit rates, so they borrow from the overnight markets, the money markets, 15 days, three months, you know, up to one year, HDFC banks, FD rate guarantees, 5.3, 5.3, 5%. And for senior citizens, 5.8%.

Deepak: That's the maximum they are giving you for a year. Hdfc Bank today and today is August 4th, 2022. We're looking at HDFC Bank. A certificate of deposit. This is illustrated in the money markets that has actually traded at 6.35% for a year, almost a full index from 5%, I think for a year, which is a full one percentage point higher than RBI is willing to borrow from depositors. That means it's willing to pay as much as 6.5% for a year. In fact, I looked at Kotak Bank and that was as much as 5.7% for six months. So it's it's it's like banks have reached a point where they are short of liquidity. The city market was dead. There was no city operations for almost a year. Suddenly, Citi Markets has seen some light and banks are borrowing from the city market to the order of sometimes, you know, 100,000, 500. You know, those kind of numbers. Now, why is it that banks are like, we don't want to raise our fixed deposit rates? The answer comes from if you raise your fixed deposit rates, every single of your customers will shut down their current FDs and move to the higher rates. You don't want that because you want this 100 crores or 200,000, and you're going to try and delay the fact that you actually need to raise your PhD rates to get serious money from your customers until the point where it's really visible.

 

Deepak: And so first, the rates are going up. In fact, your short term mutual funds, short term debt mutual funds will actually benefit from this. Of course, they've hurt so far, but going forward, they will get better returns. The last one year, even short term mutual funds have given only 3% or three and a half percent returns. But the next one year they'll give you six because the new rates are coming in at six, 6.5. So this is very interesting because even the government is borrowing as as much as 6.3. The government is now a better bank than most banks. The government is safer than most banks. But the government's one year borrowing rate and it comes this every Wednesday there's an auction of T-bills. This T-bill auction contains usually a three month or a six month T-bill and a one year T-bill or a combination of them. So the one year T-bill in the recent weeks auction has gone at 6.3%. 6.3% is a huge interest rate to pay when HDFC Bank or SBI is one year fixed. Deposit rate at max is giving 155.8. So you're paying 50 basis points more as a government. Government is obviously far more safe than SBI or HDFC Bank, and yet the government is paying 50 basis points more than any of these banks are. So it's quite moving up in terms of interest rates.

 

Deepak: Rbi is continuing to be forced to contract because their dollar protection, they want to they want to keep the dollar in this range. They're afraid of it going much more than 80 and so on. Now what happens? It's a very interesting point. You've reached a point where you've taken out all the excess liquidity. If more dollars come to be sold, what do you do? Now, obviously, RBI doesn't want the system to go into such a deficit that interest rates rise too fast. That can cripple the economy. The economy is already been hurting quite a bit. So, I mean, of course, it's starting to recover. But the point is, you want to stall that recovery too fast by saying, I interest rates have gone to 10% or something. So you want to protect the liquidity portion. So what is the RBI have on this balance sheet? It has US dollars. It also has Indian government bonds. It's selling the US dollar. So that part is going down. It can increase the amount of government bonds that it owns by just buying government bonds from the market. When it does that, it will keep the balance sheet contraction to a relative minimum. Now, cutting 800,000 was already quite a bit. They might decide, Oh yeah, let's not do too much more of this stuff. If we don't want to do more than I can't save the dollars.

 

Deepak: It's an involuntary thing. People are leaving their leave the dollars out. But I do feel that they might actually go in and say, listen, we will buy government bonds to expand the balance sheet. This is interesting because, I mean, as we talk today, the yield of the ten year bond and tomorrow is an RBI meeting thing where they're expected to raise rates by 50 basis points. Today, the yield of the ten year bond has fallen by 15 basis points, which means what was 7.25% yesterday is 7.14, not 15, but so 11 basis point. So what was 7.25% yesterday is 7.14% today. That means the government bonds yield has fallen when the RBI is expected to raise interest rates tomorrow. This is peculiar, but it might just be that the RBI will let short term rates rise, but long term rates come down because they might actually be more dovish and they might actually buy those longer term bonds. So India's government yields might actually come down. And then you might wonder if this will harm the rupee, because now, of course, you know, this is this would work in an open economy. And I'll come to that. It's actually India is not open. So the bond yields don't open quite, quite, quite much. But when when bond yields come down, typically foreign investors would say, oh, we want to invest in India.

 

Deepak: The yields are lower than the US or correspondingly in the US and so on. But the answer is they don't invest in our bonds anyway. But as we progress through, we'll find out why. But interestingly, the government will at some point have to get a lower payment rate for their interest rate on the debt that they already have. India's highest cost on the fiscal budget, that's the government budget is interest payments by a factor of nearly two because the next highest thing, which is the defense budget or some of the subsidies that we have, are less than half of what we pay just on interest payments alone. We. Be more in interest than we collect in taxes from from all corporations in India. So given that any lower interest rate would actually be a nice thing because that means for few the future, we may have to pay a lower interest rate going forward. And the government is stressed because they have a problem with fertilizer costs. Fertilizer costs have gone up because of Russia and the war and so on. The fertilizer subsidy is going to increase the free rice program. They started in the in Soviet times, which continues to be a big strain on the government. However, RBI has always hated to buy government bonds. This is a new thing for everybody here to say. The RBI will switch to buying government bonds and there's a reason for that because the government has done stupid things with it in the past.

 

Deepak: They might continue to do it in the future. I hope they don't. But the fact is that people in the RBI have that muscle memory, that the government is not to be trusted and therefore they don't like to buy government bonds. And, you know, the West has kind of said, no, no, your governments are stupid and you know, and now their governments are stupid. So it's like it's almost like, excuse me, why are you doing shit that you told us not to do in the first place? But the point is, they are and they are doing it almost in such a abandon that it almost forces me to question everything that they ever told us about economics or sound economics in the past 20 years. Rbi currently, because of the structure it is and it has done whatever it has done to build four forex reserves, owns three x more US government bonds because it owns forex reserves then Indian government bonds, which is basically means the RBI is funding the US government much more than the Indian government. That picture, because of the contraction in forex reserves and perhaps a corresponding increase in Indian government bonds might be changing. And that's a very interesting change because emerging markets were always told not to do this, and we're doing this right now.

Shray: Okay, I get that. But that is a pretty comprehensive summary of how things are happening in India. But can you not bring up what is happening in the US and how is it different from what's happening here?

Deepak: Yeah, so interestingly, I haven't just talked about India all this time. What is the Fed doing? The Fed said we will contract our balance sheet and all that, so they haven't even started contracting the balance sheet. The US operates on a completely different plane, so what the US, the US doesn't need for forex reserves, right? So the Fed only owns two kinds of securities. For the most part. They own a bunch of stuff. But what the two kinds of things that they own are, number one, they own US government bonds, they call them US Treasury securities, they own $5.5 trillion of this. They've bought like, you know, like there was no tomorrow and that was done over the last few years, but it was massively increased during COVID. The second thing that they did they own is mortgage securities. They own 2.5, 2.7, seven or something trillion dollars worth of marketable securities. Now, every time these bonds send back a principal repayment, they might own a treasury that matures, they might own a mortgage backed securities. So a mortgage is typically every month you pay back a little bit of principal, a little bit of interest. The interest is fine, but the principal which goes back, is usually reinvested back into the same securities. Now the Fed is saying, I'm going to remove liquidity. That means I'm going to contract my balance sheet.

Deepak: How does it do this? The Fed in the US is very different from how the RBA operates. The RBA in India is the merchant banker for the government. It also issues the government bonds so it doesn't buy them directly in any auction. If it wants to buy government bonds, it has to go to the bond market and buy them from other players. In the US there is something called a treasury and there's something called the Fed. The Treasury is the merchant banker for the government, so the Treasury issue securities, the Fed is the one that produces is the liquidity manager for the government, which means the Fed actually prints money to buy Treasuries and it participates directly in auctions. This is equivalent to saying the government is borrowing money and the RBA is printing money to buy government bonds and therefore lend the government money. This would be unacceptable in India, but it's very acceptable in the West. Now, both all ECB, you know, Japanese, the Bank of Japan, the Bank of England and the US Fed, they are continuing to do this. What they do is they participate directly in auctions. This is a very interesting concept, but. The US Fed has been basically financing the US government like crazy in the garb of expanding liquidity. Now the reason they want to do this is because they want to say, oh, listen, you know what? We want inflation.

Deepak: We want the economy to expand. So therefore, whenever the US government is the US Treasury is issuing auctions, whatever comes in at auction, I'll try to buy as much as that as possible so that you people, you private people should not get risk free avenues to invest and therefore you should take risks and therefore the economy will grow and so on. This was their stated goal earlier. Now inflation has come, inflation come and slap them on the face. So now what do you do? You have to withdraw this liquidity. So if you have a guy who says, listen, anytime you show bonds, I'll buy them, you will issue bonds like there's no tomorrow. You will spend money where there was no spending required. So more defence equipment or we will finance Ukraine with so much. We will do this, we will do that. So stuff that you didn't want because you could finance it, the Fed is going to print and buy our securities anyway. You don't have to be fiscally responsible in any meaningful way. Therefore, the US is the exact opposite of India. Here the RBA hates to buy government bonds because they know the government is fiscally irresponsible. The Fed, even though it knows that the US government is fiscally irresponsible, it has been continuing to buy its debt saying, Oh no, no, I want liquidity, I want inflation, all that drama.

Shray: Now this is where it becomes very interesting. The US Fed actually prints money to buy mortgages. That means they finance mortgage loans, you buy a house and you're a qualified person, some sort. You effectively can sell your your mortgage. Whoever issues that mortgage is a bank or a finance company, they can sell that mortgage to an agency in a pool. The agency is either Fannie Mae or Freddie Mac. Those guys will buy it and then those securities will be sold to the Fed. So these are called agency guaranteed debt. So effectively the Fed prints money so that Americans can buy homes. This is this is something that, you know, has always been done because, again, mortgages are relatively low risk agencies that Fannie Mae and Freddie Mac have an implicit guarantee with the government. So therefore, if any loan goes bad, the government is supposed to pay. Imagine the Indian government paying you to buy a house. It would not be it would be considered the worst fiscal disaster ever for India. But America has been doing this for years now. Every time there is a repayment, the new rule that has come is the Fed, which says, I will contract my balance sheet. Now they have $8 trillion on their balance sheet, $2.2 trillion in mortgage bonds, where I am assuming that at least, say, 50 to $60 Billion of principal must be getting paid back every month.

And the US Treasury securities are there where of course most of the Treasury securities that they own are long term, but they have short term treasuries as well. Now the Fed is saying I will contract it, but how not all at the same time when the principal repayments come back, I will still buy more. However, I will allow $30 billion of government debt to mature and therefore I will not renew so that even if $25 billion comes back as principal repayments, another $5 billion I will sell. So I want to contract my balance sheet with $30 a month. There are $8 trillion balance sheet, so it's nothing. It's on the order. It's less than 1%, I think point in fact, if you consider that $30 billion is getting contracted from the Treasury side of the balance sheet and $17 billion per month is getting contracted on the mortgage side of the balance sheet. They're only reducing the balance sheet by 0.56% a month. This is okay, but India has already done it 9%. The Fed is doing 0.5%. Now. In fact, 28th July is probably the one of the first times when we saw and small contraction of the balance sheet. It's a very tiny amount, but still at this rate and you know, at 0.5%, you take 20 months to get the balance sheet down by 10% and 10% is just $2 trillion.

They have eight. It's a very large number. Of course, what happened, what they've said is, listen, we will accelerate this process in September. We will increase it to 1% per month, which is instead of 30 billion, it becomes 60 billion numbers doubles. So therefore, even then, it will take another eight months for the balance sheet to contract by 10%. India's balance sheet is contracted by around 10%, a little bit more perhaps. And yet our interest rates have started to increase now in the US. For them, the raise in rates in a certain way it will happen in a very different way. I'll tell you all that happens. This is. Where it becomes peculiar in India because the government bonds are not bought by or where so much the play happens largely in the banking system. In the US it's the Fed who's the primary buyer, the US Treasury. The US government issues $1.5 trillion of debt per month. That means it needs to borrow that much just to pay the bills. Out of that 1.5 trillion, 1 trillion was the Fed. The Fed would print $1,000,000,000,000. I mean, effectively net of everything. And only $500 billion would go into other people's.

And this is what is not per month, per year. So it's about $100 billion a month. So now what happens is this $500 billion a year was being bought by private parties. Who are these private parties? Foreign central banks like India who had access to money or US pension funds, US hedge funds who are playing the market and so on. Now the Fed will have its purchase because it's contracting. The balance sheet is how its purchase from $1,000,000,000,000 a year down to $500 billion here. But the Government is not spending any less. It still has to pay the bills. It still has to issue $1.5 trillion of securities per year. That means the US Treasury has to now find buyers not for 500 billion, which is what it was earlier, but $4 trillion. That means from a $50 Billion a month net issuance to the private sector, they're going to go to $100 billion of net issuance to the private sector, which is a huge jump. Add to the fact that a lot of the trades that were happening through hedge funds call the basis trades and all of that they have contracted quite substantially. So the play in longer term US Treasuries has reduced from a hedge fund angle and therefore a volatility is crazy at the higher end. So if you go to the ten year bond, suddenly you find it falling by ten basis points.

The yields are increasing by ten basis points. These things were unheard of before COVID or even during I mean, just after COVID, when the liquidity was great, it suddenly massively increased. So what is happening is. That interest rates at the long end have become extremely volatile. The US actually saw it go to 3.3%. Now it's back to 2.6% and so on. So it's a very volatile longer, longer term here. I think what is happening in the US is going to eventually increase interest rates because supply of government bonds will go up if a government bond supply goes up to the private sector. If rates will go up rates if rates to go up, then we're talking off a lot of the other industries suffering now. Some of this already happened. Mortgage bonds, because of the lack of demand from the Fed itself, already has seen a doubling of their interest rate. So what was 3% is now 6%. I mean, new new mortgage bonds are being issued at 6%. If it costs you 6% to buy a house, your monthly EMI will probably from the 3% rate will probably go up to nearly 70% higher. That means if I were to buy a $2 million house and I could afford, I don't know, maybe $2,000 a month, I'm just throwing a number probably higher.

But I take.

The number now. The same $2,000 a month will result in a house that cost only $1.2 million. So your affordability index has gone down by that much and you're seeing the impact of it already. Now the US demand for housing is contracting rapidly. May, June, July we are seeing massive contraction in demand. We are seeing that the US government will have to reduce spending because you can't keep issuing $1.5 trillion because there's no demand for those treasuries. I think if things go crazy, the Fed will will lose its mind. And if you read something like 4.5% on the ten year or 4% on the ten year, the Fed will lose its mind and say, listen, I can't do this anymore. I'm still going to start buying. So I'll keep my balance sheet contract expansion zone. The ECB where. Europe is in far worse shape than the US has already admitted defeat and said listen, we can't allow our government's debt to go to 3% because our governments are already bankrupt. So we are only pretending they're not bankrupt just because, you know, we're where our names are, Italy and Germany and all that. So therefore we can't allow our countries to go bankrupt. Therefore, Europe has actually created a separate scheme saying, Oh, on one end I will keep buying my government debt, that their interest rates are lower, but I will somehow raise interest rates for everybody else. This is some kind of a big con job.

Shray: That dual interest rate policy.

Yeah. I mean, I don't even know how because money is fungible. So, you know, but if, if interest rates in the US go to four, four and a half percent and the Fed allows it to happen, India will get impacted, the whole world will get impacted and there will be a massive recession in the US and perhaps the rest of the world as well. But I don't think that's going to happen. But what's what are you seeing is the India's interest rates have already gone up. The US interest rates have started to go up now and I think their impact is coming in the year days to come. Our impact has more or less already come, which is why our inflation is only 7%, their inflation is nine, so they haven't even seen the impact yet. We have already seen quite, quite a bit of that impact.

Just weighing in on one thing that in that audio podcast, the guy said that the Fed and has now so many different schemes that they may be able to continue a contraction in the balance sheet and surgically target some other parts of the economy to prevent everything from falling apart. But I guess we'll find out. But as I said, I mean, the difference could not be clearer in what the US experience has been and what the Indian experience is. So here's my question why are we in such a bright spot? I mean, like, what did we do right? Or I mean, is it just that things haven't been so bad till this point and now we're all going to follow the same trajectory? Or is the future actually brighter for us here onwards?

This is a very, very interesting. I think this is where I think things change. India is in a very, very interesting situation where I think we've never really been like this before. So we have screwed up big time in the past.

Shray: Tell me about it

Deepak: It. Big time. I mean, of the orders of magnitude that, you know, whether it was corruption at one level, whether it was extreme government spending, those three BS, all of this. We've done it. We've done it all. We've suffered as a result of it. We've seen inflation hit us, hurt us, and we've taken the necessary action. We didn't. We allowed our corporates to become crony. We've changed that. We've instituted the bankruptcy code. Companies have been taken away from promoters. That has spooked everybody else and said, Listen, guys, let's get our act together. Let's not over borrow because they take the company away from us. We have successfully gone through the bankruptcies of companies of NBFCs. We have successfully reduced our fiscal over balance of freebies on a bunch of things. Of course, we still have some freebies and we've done a few things that have actually changed. So for instance, right now the government has one of the best tax collections it has ever seen, whether it is GST, which is massively up from earlier, it's personal income tax, which is again massively up from earlier corporate income taxes of 4040 5% higher than pre-COVID times or so. Take all these parameters. The government taxes are in great shape. Bond yields. We've already seen our bond yields. Our yields have gone up to seven and a half percent. Now it's starting to come down a little bit.

Deepak: Credit growth anemic since 2016 because you created demonetisation a bunch of other things, the credit growth and because obviously companies were scared to borrow too much because they would lose their companies and lose their thing in the bankruptcy court. We've reached a point today where credit growth is starting to come back up to 13%. Now, what I was telling you last time was was six or 7%. It's gone to 13%. Now, 13% is good because banks are charging maybe seven, eight, 9%. You have an extra 4% on top of that. That's actual growth that's starting to peek into the economy. Even if inflation was 7%. That means if the banks are growing credit at 13%, there is a potential 6% extra thing that's happening over there. This is quite interesting because I don't think we've seen this before and we're seeing this in an economy in a world which seems to be going into a recession. We seem to be expanding. Second, we are a land of inefficiencies. We continue to be. But a lot of these inefficiencies have been bridged by infrastructure at some level. Gst, for instance, fixed a lot of things. Now, what did it fix? We had a plethora of taxes. If you are going to go to Bombay, there was an road tax and there was a state level something tax, excise duty, C, VAT and all sorts of things.

Deepak: You clubbed all of them and put them together into one thing called GST. Earlier, if you are a service company like ours is a service company, you would have maybe you would not have excise duty, you would not have. So you might only have service tax on the stuff that you provide. But because I bought a monitor which has VAT, I couldn't offset the VAT that I collected that I paid with the service tax collector because there are two different taxes. Now you have GST, which is kind of combined everything into one. It's taken five years, but slowly and steadily the system has started to absorb the impact of all of this and of course not fully done yet, but it's come to a point where the efficiencies are start to kick in. So you said, okay, oh, well, you can I can offset this with anything else that I'm paying and everything else. Every all the tax I'm paying is on a value added basis. So I could, by that monitor take the GST on it and offset it against the revenue I earn from using the monitor for whatever purpose then providing the service. So this is great because I think it provides a linear relationship and you don't overtax yourself. Net effective taxes come down. However, it takes people time to understand that, Oh, that tax and this tax can be offset.

Deepak: It takes a while to do that. And this is one layer of efficiency that's being brought in and whose impact we're starting to see. Now. Another big thing, digital infrastructure like UPI. Upi is insane. It has gone to ten lakh crore. To give you a context, the next the payment systems, which we think are big, like credit cards, they trade maybe. I mean, the total transactions them are roughly between 60,000 and 100,000 crores per month. This UPI is a million crores per month, which is ten lakh crore per month. It's ten x the size of credit cards. It is just massive. And how do we do it? We created a, you know, a system where the government said it would pay for some of the merchant discount rates around UPI. So when merchants have to receive money, they would usually pay the bank. A certain amount of discount rate. But since the government said we want to promote these payments, the government said we'll pay. They paid only 2000 crores to get this entire thing running. But now ups ten X, anything that is Visa, MasterCard or anything else. It is massive. This is this is huge digital infrastructure, account aggregators that's just come out. In fact, two or three days ago, we talked about all the banks getting on board. Soon, all of SEBI compliant things also get on board.

Deepak: All of this together adds up to a layer that says, well, you know, if you have this infrastructure, then what can you do with it? You can do better lending, you can do better payments, you can do so. All of the digital stuff that happens, we have some of the best in the world, you know, physical infrastructure. We really haven't done anything because we built roads, we built building run for 20 years, and yet India has no motel chain. Why aren't people going on the roads and travelling everywhere? Because you can't find a clean toilet on the road. I know I travel. We know the few places that have clean toilets and we still don't have great things. The few companies that did or tried to do it. One example was a company called Camel Hotels. I mean, they used to be there in the past where they were fantastic, a family that kind of built these massive places to eat with clean toilets along the highways. Now they've kind of splintered. And the the hotels are not kind of quite as good coffee day, which had brilliant, brilliant places along the highways. And I still think that there are places to stop it if you ever have to take a restroom break, because, you know, you'll get clean toilets there. And yet that company has suffered because you know.

Shray: A lot going.

Deepak: On. Yeah. I mean, there is that part of it. You know, we've not been able to expand and replace them with someone superior. In contrast, the US built its roads in the sixties and the fifties and so on, but they have motel chains, they are best western, they have holiday. I mean, all of these companies, the big hotel chains started off as highway chains, many of them. And we don't have a single one that's a proper highway chain in India. And that's why I think real infrastructure hasn't resulted in a massive expansion yet of the economy. The digital infrastructure resulted in massive changes. Jio and the 5G, 4G sort of infrastructure, India has some of the cheapest and the fastest Internet speeds on mobile available across the globe. I think we're one of the fastest there. I mean, and the benefits of that have been seen. We've seen an Amazon take advantage of it, Flipkart, Swiggy, Zomato, Uber, all of these guys have because that infrastructure is what allowed them to have much more fine tunable map plus GPS infrastructure and so on that could use this. The new thing is called NDC. I think this is also that's where the the commerce part of it bring that into a UPI like interface where you say you have a single central infrastructure that allows people to offer their services and the consumer of those services doesn't have I mean, can can negotiate payments with everybody else in the system since infancy. But I think it's a phenomenal concept. That's why we're in a bright spot. I don't think we should think of us as in a bright spot because of the other stuff, but we're also in a bright spot because everybody else has screwed up.

Deepak: So we've screwed up. We've learned from our mistakes. We're coming out of them. We've had our inflation, we controlled inflation. We had high fiscal deficits. We tried to control them as much as possible. We have built digital infrastructure because we didn't have anything and so on. The rest, on the other hand, is just starting to experience the negatives that we have already experienced. They have printed too much money, they have inflation, they have let wages rise some crazy extremes. They have high fiscal deficits that they were getting their own central banks to print and borrow from China. China has a debt problem. It's a close country. We don't know what's really happening, but they have a massive, massive debt problem because they use the excess money they built to promote mortgages. And now people can't you know, the real estate developers are in deep trouble. People are not paying their mortgages. There could be a debt issue of gargantuan proportions. And you can't invest there anymore because if you know, you know, anybody who tries to invest there, they might seize your goods any day and say, you know, I'm sorry, this is nationally required, so you can't do anything. The legal system doesn't protect you at all. So China is an investable Russia. Of course, nobody wants to invest anymore. You know, maybe India should invest in Russia, but that's it. Take Brazil. It's a commodities driven economy, reasonably corrupt. Again, not major in terms of growth that you might want to see there.

Shray: Europe you're not a fan of anyway.

Deepak: I mean, Europe is basically so Japan is a bug looking for a windshield, in the words of, I think, John Mauldin.

Shray: We'll find Out.

Deepak:  We find out. I think so. It was it's been a bug looking for a windshield for years because its economy is in tatters. I mean, not in tatters in the sense of that. But in the Japanese central bank now owns a significant amount of government debt. And. Also significant on their own stock market because they didn't want anything to go down. So they printed money to do it. And because they were a relatively isolated country that only exports, nobody cared. But at some point everybody will care. And that point may come in the next few years, or it may take a few more decades because they can continue to pretend an extent for a really long time. But it's not really investable because you know that this thing is going to come and hurt you someday. Europe is a basket case without Germany. They're finished and Germany is in trouble right now because it's so dependent on Russia for energy that if you take Germany out of the equation, the rest it's like Germany is the underpants of Europe. You take Germany out and you're going to see stuff you don't want to see, you never have wanted to see. And it was better, better protected. So Germany is so key to Europe and Germany is sort of Russia that you almost look at this and say, I don't want my I mean I want the RBA to not have euros. It is that bad because I mean I think it's in that bad situation. Britain is too small to matter in the overall scheme of things. But I mean there is just a little Ireland understood.

Shray: It's just not something you're used to hearing.

Deepak: Yeah, but I mean, we've given the pound a lot more importance than we have. So where do you go? India is the largest single investable bloc in the world. We've just become this, I might say, ONGC, Digital Infrastructure, all this stuff. But it's also because nobody else is quite as investible as we are. And I think maybe short of Indonesia and Indonesia has its own set of troubles, we might be the single largest economy that can be invested in for another reason as well. We have one of the largest self dependent economies in terms of food. If we take out the dependence on crude and move to electrical energy, cars and so on, we might actually be able to substantially reduce the demand our dependence on crude as well. Our local market is massive. We've always given away this local market to external players.

Shray: Continue to do so.

Deepak: We continue to do so. For instance, even in UPI, the largest players are Walmart and Google. Google, our largest e-commerce company, continues to be Amazon. It's fighting with Reliance and it's a good thing because Reliance is a homegrown company and you need more of these players to kind of compete and they're competing well. It's not like they're ordinary players. They're this thing. So we've given away. In fact, most of our FMCG goods happen to be hll actual and Nestlé and so on. It is that fear a great consumer economy and you know, to a certain extent because India was supposed to be this low cost economy. Even the brands abroad used to foist the worst on us. Good brands abroad. Name any name they were, they would send their budget offerings. Yeah. And even though India was willing to pay for it, we pay more for a car than many Western countries do because our car taxes are so high and yet they send us the shittiest models that that are available. So if you want a really good model, they will not actually send it here. They will ask you to import it, call and pay the 150 or 200% duty or whatever it is to bring it to India, when Indians will actually quite happily pay for great cars.

Deepak: And it's not just cars, it's clothing, brands, shoes you can see everywhere. Lego LEGO doesn't send some of its best products here. And you have to if you go abroad, you suddenly say, oh, my God, there are so many more. But that's also because they don't think I mean, we've not had any real homegrown brands ourselves to compete with them. They think this is a you know, it's just a way of way that thinking is progress. We need local competition. If you invest more in India and you don't have to bring the goods from outside, you actually manufacture them here or you make you make for India itself. I think we could build a lot more brands that would serve both India and then we don't have a single great global brand. And it is it's almost inexplicable why we don't have it, but it has always been the cost of capital, relatively high cost of capital that has stymied us. For once, we have a chance to actually reduce our cost of capital. And I hope it happens, because if India becomes an investable country, then foreign money will come in, our domestic consumption will improve and give greater returns on the capital that's invested here. Allow us to build greater brands that can be taken abroad.

Deepak: We have very few of our brands that are abroad and our domestic consumption and domestic move will actually propel investments. Some of it has already happened. Fires have taken to like roads or fires last took out money of this magnitude in 2008. It was not to lack cause it is 50,000. That means for X more money has gone out in 2022, 21, 22, then in 2008. Fine. You can say, you know, struggle. But guess what? At that time, the market fell 60%. This time the markets have fallen less than 15. Why? And the answer to that is domestic investments. So domestic investments by just retail investors in mutual funds, equity mutual funds alone of the order of $15,000 a month for eight months is 120,000 crores. And add the Epfo, which is the programme for an organisation that has been pumping in roughly 10,000 a month for eight months, that's 80,000 plus. You add 120 and 80, that's 200,000 crores, offset entirely by just the epfo and domestic retail investor. So you've had an almost complete offset of the foreign investors exiting forex of the highest exit of previous times by just retail investors and domestic investors. And remember, we don't have any institutions of any repute. Most institutions can't invest in equity other than maybe a Lyceum, the insurance companies and so on.

Deepak: But most pension funds find it difficult to invest in equity and you know, they have certain limits on what they can do and so on. So we haven't built great interest. We don't have, for instance, CalPERS, which is the California public pension thing for pension scheme, which is so big that it can actually invest in equity worldwide and make a significant difference to any economy that invests in. We don't have anything of that magnitude, and yet we've already had domestic investment to the extent that it has offset a significant amount of foreign investment leaving. So this is a factor that I think will come in even more. It adds to this bright spot thing. And, you know, you add all these factors together. There's there's domestic consumption, there is domestic credit growth, there is potentially lower bond yields. There's potentially the fact that you can't invest in most of the other countries and definitely not, you know, some of the smaller countries. But in the. Among the large. We are probably the only one that stands out right now. It's surprising and I have never been a big fan of being bullish just for the sake of being bullish. But there's just too many ducks in a line right now.

Shray: So interesting you should say that. Now, I'm reflecting on some of your previous podcast episodes where you've said that, you know, India should do things like open up the rupee more, allow foreigners to own our debt. And so is that the advice you would have at this stage as well, that these are the things you should potentially start doing and that's how your economy will take advantage of this sweet spot and the current interest and how we're well aligned. But then how do you do all that and then not look around your neighborhood and say, what is it? Pakistan, Sri Lanka. But now, even recently, apparently Bangladesh, which clearly have issues when it comes to foreigners investing in their debt and weak currencies. So how do you reconcile these two fears? You're saying now is our time, so let's let go of all these guardrails and sort of dive in. But on the other hand, that doesn't seem to work out so well for everyone else.

Deepak: You know, here's the thing. I think let's go back one step. The short term issues that we have is that we're not open enough. And I think that I think we have a lot of issues on that. I mean, you can do more podcast on each of them, but we've probably done and we have, yes. So, you know, the foreigners that come in, they don't want restrictions on what they want to invest in those just cause a been a painful thing. For instance, we had restrictions that said, oh well you can't invest in debt that matures in less than three years. They're going, excuse me, what? And then we can everywhere else we go, we can do this. Why can't we do it with you? Well, no, no, you can't because you'll run away. You know, all of these rules have been created basically because of a fear that foreign capital will run away. Guess what? It ran away. 200,000 crores of it ran away in eight months. And you couldn't do anything because you didn't. I mean, the fact that you had all these rules in place didn't create any locks of them going away. And guess what? If you open up the rules and if you open up these rules in a meaningful way, things will change. If you told people they can't fire any employee, they won't hire people, hire people simply because you are allowed to fire them. You can expand your workforce and contact your workforce on demand at certain with certain restrictions, of course.

Deepak: But the fact that you're allowed to fire people is the only reason you would be able to hire the same way. If you can't take money out of your country or you can't invest in short term debt and all that stuff, you won't invest. Foreign investments are now 30% of their limits. They've been given very large limits, but they're only 30% of the limit because it's like almost like saying, let's let's throw them some scraps because they want us to invest, but they have these specific restrictions on what they can they cannot do. I think if you open up the gates, more money will come in than go out. Now, the fear is, of course, all the money of the current Indians who are sitting in India and say, well, let's take all our money out. You know what? We've had opportunities for years. We have of all the something called a liberalised remittance scheme, that liberalized return scheme can be used to take your money out of India. This liberalised remittance scheme is over $250,000 per person per year. That is a huge amount of money. Right. So, I mean, so you would expect that a lot of money will be going out like this already because people want to take the money out of India. But guess what? Even though it's liberalised and you can do this off a bank account online today, yet only $2 billion leaves India, 1 billion of which is travel related. That means people who book, you know.

Shray: Like foreign tours.

Deepak: Foreign tours and stuff like that, that's half of it. That's not even money people are trying to take out of India. They're actually going to do something.

Shray: Like Tourism

Deepak: Yeah. Which is which is fair. So only 1 billion of real money. But however, 1 million, 300 million goes to people paying gifts to their relatives or maintenance of relatives outside India. Like, you know, or I think about right now about maybe 100 million or so that goes to education. How much actually goes into equity investments abroad, which is what you might use to park your money abroad, $30 million a month, $30 million a month for a family of four at 250 K per person. For rich people, it's 30 rich families per month. We're actually saying that just 30 rich families in India with four members in them that are sending all of their potential total money outside of India because we are so desperate to send our money. I think the numbers just say that the IRS is like a rounding error in the overall sequence of things and that even if we open the gates and let's say that I was wrong and that when you open the gates, everybody is going to leave, I don't think you'll see more than five or $6 billion a month go out through, let's say, even $10 billion a month. And that will go out only for five or six months. But the amount of money that will come in will be so much more orders of magnitude more, which will I think we should just open it up and we should open up the rupee. We don't do things. Unless there's a crisis. So we'll probably have to wait some of these crisis elements to hit us before we do it. But I think this is the time. We've got all the other setups in place. All we do is, you know, let this open wheel speculators come like George Soros did with the Thailand baht and the Indonesian rupiah and all that.

Shray: The pound, the British pound.

Deepak: And the British pound, well, the British pound in 1982, where the system was unsustainable but their the defences were weak, are defences are not. And if anything, this particular incident recently and I'm not saying incident from this perspective, but in general what has happened recently has shown that the Army is willing to use its reserves to keep the rupee in a relatively small band because they figured out that it has the army does have the power to fight back. So I think given all of this, the fear that we'll be a Bangladesh or in fact, we might actually end up helping the Pakistanis and the Bangladeshis, I hope they do, because it is better to have trade with these countries in the Indian rupee than for for us to have dollar based trade it. And if these countries have India based trade and we open up the rupee, they can use the rupees to trade with other countries, but they can import from us and we can provide them dollar rupee aid whenever required. And eventually the system, a system can be developed where rupee becomes an internationalized currency at some level. I think doing this right now is a brilliant concept. It's just that we've never, ever shown the political will to do it. For some strange reason, I'm seeing both economic and political will kind of coming together, and the situation is such that other than the US, India is the only great investable opportunity.

Shray: I think that's quite a line on which to end on. So any parting thoughts.

Deepak: So, you know, I think to summarize, if you are looking at where we are right now, our dependencies on imports largely stem from crude for the most part, and some electronic components and parts of that. If we if you were to say this, we need to get foreigners to come in and not just foreigners, I mean, the whole world to come in and invest in India, use those and use those investments to build great brands and companies that serve us domestically and can also serve people worldwide. So we're not just saying, oh, Indian plots, they are not going to work for the foreigners because they need better plots than. I think India builds great laws. India builds clothes for the world. And Indian domestic markets also deserve to be addressed by those the same brands that we can build. We have a domestic population that's getting richer and richer every year. Perhaps the divide is high today, but it'll it it'll eventually uplift even the lowest common denominator here. We've gone through the COVID damage without causing too many problems for the future. We haven't over extended ourselves in a way that will cause so much inflation that we have to engineer a recession to destroy to to reverse the trade. I think we got hurt a lot more in COVID, but because of that, we've taken the damage and because of our past sins. Also, we've taken the damage and we've emerged stronger today. Things that are infrastructure based, whether it's a dedicated freight corridor or the UPI and stuff like that. We need the government to spend more on infra like health, water, education.

Deepak: The money that has to fund this has to come at a much lower cost of capital for the government, and that can only happen if you free up the rupee and let others invest here. I think few things that we've done really well is our vaccine delivery for this thing. I mean, it's surprisingly good. Our digitally advanced infrastructure, which can compete with anybody else in the world, including Internet speeds and UPI and now account aggregator and OTC and so on. I think. If we bring everything down to the system that we have right now, our problem in the cost of capital and all the financing that seems to happen is that we have always been unable to transfer risk. We haven't built deep financial institutions. The world perhaps is not focused on that, that India needs be deep financial institutions that need some time to evolve. But India does need or has built reasonable growth. But we need a lot more we need a lot more financial institutions that can allow us to transfer risk or in DC, UPI account aggregator are perhaps going to help create more credit based institutions to to help transfer that risk away. I think if we were to get a few of these things right now it's small building blocks for the future. India can be ten ex of what it is simply because we're in the right place at the right time. Basically, what I'm trying to say is if we don't screw up, we'll do really well because the world seems to have screwed up.

Shray: Surprisingly optimistic words. Thanks, Deepak.

Deepak: Thanks. Really. Thanks for listening.

Shray: Thanks so much for listening. If you like how Deepak and the Capitalmind team analyze markets and think about investing, visit Capitalmind wealth dotcom to see a portfolio management service that is among the lowest costs in India, with products starting at 0.25% per year and no performance fee. If you have any feedback, suggestions or topics for our next episode, please send over an email to podcast at Capitalmind dot in.