The stock market has lost over 2000 points since the announcement of this budget. The broker lobby is disappointed, whether it be over the proposed hike in surcharge by upto 22% for the super rich, or by imposing 20% tax on buybacks, which could potentially discourage companies from buyback plans, and has taken this issue to the PMO. One of the only two members of the Appointments Committee of Cabinet, Amit Shah, who himself has a history of stock brokering and a keen eye for markets, has taken note. Sources hint that the reshuffle in the ministry and transfer of SC Garg is a direct consequence of the changing market undertones, and a step in the direction of restoring investor confidence.
As the Row over Subash Chandra Garg’s transfer and subsequent announcement for Voluntary Retirement refuses to die down, as, in a recent development, amidst wide speculation that PMO wants Finance Ministry to reassess the proposed issuance of Sovereign bonds in Foreign Currency, Finance Minister Nirmala Sitharaman disconfirmed a rethink. “I am not doing any review. I have not been asked by anybody to do a review” Ms Sitharaman was quoted saying to a leading newspaper.
Earlier this month the finance minister had put forth the idea to issue these Overseas Foreign Currency Sovereign Bonds while presenting budget for the current fiscal year and this sparked a row between economists and Finance Ministry. The idea met with severe criticism from RBI, its former governors including Raghuram Rajan and YV Reddy, Economists and BJP allies alike. The RBI’s stand on this matter has been that this decision could impose huge economic risks as this exposes government’s liabilities to currency fluctuations. Even the stock market has reflected this sentiment.
The man who became the face of this conflict is former Finance Secretary S.C Garg a senior IAS officer of 1983 batch, who is believed to be the chief brain behind the proposal to raise $10 Billion from the sale of sovereign bonds overseas. He recently defended this proposal citing the case of 19 of the G20 countries which carry out such borrowings. Garg apparently erred on the side of withholding information as he failed to voice the risks associated with raising sovereign debt in Foreign Currency – A move that painted a target on his back! His transfer comes as an act of re-establishing government’s pro economy stance, and assuring that any policy which could potentially dwindle the market, would not be backed.
This was not a first for Mr Garg. His record in the Finance Ministry has been radioactive. He dissented from the Bimal Jalan headed committee report on RBI’s economic capital framework. Earlier in August 2018 he had locked horns with RBI over the latter’s cash reserves, which had led to a public flare out, with then Deputy Governor of RBI Viral Acharya delivering a scathing speech, which Garg had countered with a sharp tweet.
Now, with this new controversy with Sovereign bonds, as the market sentiment reached a tipping point, the Appointments committee of Cabinet transferred Mr Garg to Power Ministry, attempting to redeem itself from the situation.
There is an emerging sentiment that Mr Garg has become the fall guy for the heavily disapproved government policy on borrowings. This was echoed by Sitaram Yechury who has said that the transfer of secretary over the ‘gaffes’ and ‘serious errors’ in the budget is not enough. Mr. Garg’s announcement of retirement a day after the transfer further fueled the talks of punishment transfer and although he later cleared in a statement that his retirement has nothing to do with the transfer, government has pulled a face saver with the action and S.C Garg’s push towards sovereign bonds and the consequences thereof seem to have cost him his job .
