Archive for January 29th, 2008

Rangarajan report on financial inclusion

January 29, 2008

I had unearthed Deepak Parekh report on infrastructure financing couple of months ago. At that time I had expressed my frustration about not knowing on which website various important policy reports are maintained.

The newspapers had reported a while back that Rangarajan committee has submitted its report on Financial Inclusion to the government. However, the report was nowhere to be found.

I just found it today on Nabard’s website. Take a look. It is one of the most important policy documents on financial sector. RBI has always shows its commitment to financial inclusion and subprime crisis will make us rethink on financial inclusion as subprime was nothing but an attempt at financial inclusion.


India Monetary Policy Review: Q3 2007-08

January 29, 2008

RBI has presented its monetary policy for Q3 2007-08.  The full report is here and the summary is here.

In nutshell, RBI maintains its policy rates and there are no changes. The overall stance of monetary policy in the period ahead will broadly continue to be:

  • To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to continuation of the growth momentum and orderly conditions in financial markets.
  • To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.
  • To monitor the evolving heightened global uncertainties and domestic situation impinging on inflation expectations, financial stability and growth  momentum in order to respond swiftly with both conventional and unconventional measures, as appropriate.

I am glad RBI maintained its rates. There were huge pressures on RBI to cut rates but it stood its ground.

There were numerous arguments from various people arguing for a rate cut on account of slowdown ( is 8.5% growth slow), credit growth (again about 20% , is it slow?), IIP slowdown (about 9%  from Apr-Nov with capital goods index increasing at about 20% every year, again is it slow), low inflation (well oil prices have not been raised and good prices are expected to rise, so inflation is only going to rise).

I will read the statement and see if I can post something on the report.


In the Q3 2007-08 macroeconomic report, it is seen that despite rising deposits, banks have not been deploying it in credit but in G-secs and other financial assets. Hence RBI says in its mon policy that one of the aim would be:

  • To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

RBI also says:

In view of the prevailing liquidity conditions and the sustained profitability of banks as reflected in net interest margins, there is a need for banks to undertake institutional and procedural changes for enhancing credit delivery to sectors that are employment-intensive. 

This employment-intensive word just caught my eye and set me thinking. RBI has been emphasizing on the word earlier as well (see Midterm report 2007-08 and Annual report 2007-08.)

I think it is because of the NSS 2004-05 report which says that employment numbers have improved but the quality of employment hasn’t (Read my posts here and here). Infact much of the employment has actually been in agriculture and self-employment both having lower growth rates than services and industry. Hence, the need to allocate more credit to those sectors which are growing and are employment intensive as well.

This is one of the biggest problems in Indian economy- migrating the huge labor from low growth sectors to high growth ones.

Societe Generale fraud note

January 29, 2008

Reams are being written about the Soc Gen fraud. Here is an official statement from Soc Gen about the fraud.

Here is a list of the top frauds in financial markets till date

On reading the note, I realise it is not really useful. It doesn’t help you understand the details about the fraud . Like Prof JRV says, it is a non explanation note.

Assorted Links

January 29, 2008

1. WSJ Blog on recession odds. It says hello to stick market crybabies

2. Mankiw points to a research that says probability of recession is 0.355.

3. Mankiw points to a debate on fiscal stimulus. Mankiw sayshe is not running for the NBER chief’s post.

4. Fin Prof points that Soc Gen was warned about Karviel before the crisis. I knew something like that must have been there.

5. Fin Prof points to ridiculous compensation structures in financial industry.

6. Menzie Chinn on fiscal stimulus

7. Rodrik discusses his weekend.

8. MR points to Keynes’ diaries

9. Martin Feldstein on Recession

10. V. Anantha Nageswaran says run for safety.

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