What's happening in Punjab politics?
Politics
On September 20, 2021, Congress leader and MLA - Charanjit Singh Channi took oath as Chief Minister (CM) of Punjab. Two Deputy Chief Ministers — O.P. Soni and Sukhjinder Randhawa, also took oath along with the CM.
This comes after Captain Amarinder Singh resigned as Punjab’s CM on Saturday, following months of infighting between him and Punjab Pradesh Congress Committee (PPCC) chief - Navjot Singh Sidhu. This development has taken place just months before the 2022 Punjab Assembly elections.
Why did the Captain resign?
“I was humiliated three times by the Congress leadership in the past two months... they called the MLAs to Delhi twice and now convened CLP in Chandigarh today, I spoke to the Congress president today morning and said I will resign today.” - Captain Amrinder
Amrinder Singh is the only Punjab CM, in the last 24 years, to have resigned before completion of the five-year term.
MLAs unhappy with Singh
Reportedly, many Congress MLAs have been unhappy with Amarinder Singh due to his inaccessibility and tendency to give more preference to bureaucrats.
It is believed that Sidhu and Majha brigade of 3 ministers - Tript Rajinder Singh Bajwa, Sukhbinder Sarkaria and Sukhjinder Randhawa - used this disappointment to rally the majority of legislators together against the Captain.
Who is the new CM?
From being elected president of a municipal council, to becoming the first Dalit CM of Punjab, Charanjit Singh Channi has seen a meteoric rise in his political career over the last two decades.
The 58-year-old, three-time legislator joined Congress in 2012. He held the portfolios of technical education, industrial training, employment generation and tourism and cultural affairs in the outgoing Amarinder Singh-led cabinet.
He along with the 3 other ministers had rebelled against Amarinder Singh while choosing to side with the camp of state Congress Chief Sidhu.
Why did Congress choose him?
Acceptability in the dissent-ridden party: Channi, known for his political acumen, will be able to negotiate with the warring camps within the party. He is close to the Majha brigade of 3 ministers that started marshalling the legislators against Capt. Amarinder Singh.
Balancing caste equation: With a Dalit CM and a Jat Sikh as the state unit’s chief, Congress has tried to balance their caste equation in the state, months ahead of polls.
The #MeToo case against Channi
Hours after Chamkaur Sahib-MLA Charanjit Singh Channi was given the post of Punjab’s CM, the leader found himself in the midst of a controversy, as #MeToo allegations made against him 3 years ago resurfaced.
In November 2018, an IAS Officer had accused Channi of sending indecent text messages to her. The matter was brought to resolution after the former CM, Capt. Amarinder Singh intervened and the woman retreated from filing a complaint.
NCW asks for resignation
However, the case resurfaced in May this year when the Punjab Women's Commission sent a notice to the State Government demanding a response to the allegation.
National Commission for Women (NCW) Chairperson - Rekha Sharma, has sought the resignation of the newly-appointed Punjab CM over these allegations levelled against him. In a statement, Sharma said it was "shameful" that such a person was appointed the CM of Punjab.
Channi, a temporary CM?
However, even before Channi could start his new innings, Punjab Congress in-charge, Harish Rawat made a statement that the 2022 state assembly elections will be fought under Navjot Singh Sidhu.
This surely undermines the new CM’s authority and makes his appointment look like poll appeasement.
Evergrande’s potential default: China's Lehman moment?
Finance
The sell-off on Monday has led to a cumulative fall of USD 2.2 trillion in equity values. Major US indices - Dow, S&P and Nasdaq fell by ~2%, Hong Kong’s Hang Seng hit a new 11-month low - declining 3.3%, while Japan’s Nikkei dropped almost 2%. At home, Indian major indices Nifty & Sensex slid close to 1%, while the metal indices fell nearly 7%.
Reason: Contagion risk from Evergrande’s potential default and Central banks meetings.
What’s Evergrande?
A Fortune 500 company - the Evergrande Group, is China’s second-largest real estate developer accounting for ~4% of China’s total property sales.
The company owns 1300+ projects in over 280 cities in China, employing over 200,000 people, and owning assets worth 2% of China’s GDP. The company, however, also owes about USD 300 billion as debt obligation.
What is the problem?
The real estate giant is finding it increasingly difficult to pay off its interest obligation of USD 8.5 million on its dollar bonds and USD 36 million coupon on its onshore bonds. Both payments are due this week.
If it is unable to pay the amounts within a month of their due dates, the world’s most indebted property developer would be considered to have defaulted.
What led to the problem?
The company’s debt trouble began last year. China’s wide crackdown on real estate developers led the company to sell properties at major discounts in order to maintain its cash flow.
The company also ventured into a wide unrelated range of industries like wealth management; owning a football team; building recreational parks and stadiums; selling bottled water and even making electric cars!
This, combined with too much debt and poor corporate governance, led the company in deep troubled waters.
What does it mean for China?
Evergrande is huge, and its collapse would cause a colossal impact:
Millions of existing buyer clientele would suffer, with their investments possibly turning into zero
All their business partners, including construction businesses, design firms, material suppliers etc., would face huge losses, some of them possibly running into bankruptcy
While the impact on lenders, banks and the financial system is obvious, experts believe that this collapse would be the biggest test that the Chinese financial system would face in years
Global impact
Evergrande’s business has a worldwide impact. One sector majorly hit would be - metals. This was already witnessed yesterday when the global metal indices and stocks fell a lot more than the rest of the market.
A major blow to the Chinese economy will also lead to a ripple effect in the form of impact on trade for all the other economies.
Is this China's Lehman moment?
Investors are nervous that this turn into a Lehman Moment, due to the increased default risks. However, experts believe that a similar collapse is unlikely.
Two reasons:
The market conditions are very different from those in 2008, especially in terms of systematic risk.
Beijing might just become Evergrande’s knight in shining armour. As of last week, the Chinese government was seen assembling a team of accounting and legal experts to examine the finances of the company, signalling a potential, and much-needed restructuring.
Central banks meetings
The fear of contagion from Evergrande is not the sole reason for the fall in global indices.
Central banks across the globe, including those in the US, Europe, UK, Japan, Indonesia, Africa etc., are expected to meet this week to decide on key policies and judge whether the stimuli aimed at infusing liquidity in the markets should continue.
With these 2 factors combined, a sell-off panic was seen across the globe yesterday. However, some markets recovered on Tuesday, including that of India, displaying broader market confidence.
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