Archive for May 4th, 2020

Look beyond Keynes and Friedman to revive the economy

May 4, 2020

Ranveer Nagaich consultant to NITI Aayog in this Mint piece:

In our battle to revive the economy, we will need a dose of both Keynesian and monetarist economics. One fiscal stimulus has been announced, with another in the works; RBI has provided monetary easing. Further stimulus is needed, but it need not be about spending or creating more money.

In every crisis, there lies an opportunity. This is one for India to usher in the next generation of reforms, so that 2020 becomes a watershed moment in its economic history, like 1991. Land and labour remain key areas. Agriculture remains unreformed. Judicial reforms are needed too. The states, especially, need to streamline procedures and regulations.

If we reform the economy, three decades down the line, when India celebrates the centenary of its independence, 2020-21 could be seen as a landmark year.

History Repeats Itself – Manthan with Usha Thorat

May 4, 2020

Superb lecture by Ms Usha Thorat (on youtube).

She reviews three previous crises – 1991, 1997 and 2008 and RBI responses to them. All this history is brought together to discuss the ongoing crises.

How to Avoid a W-Shaped Recession: Don’t withdraw health or economic stimulus measures

May 4, 2020

Jeffrey Frankel in this piece:

As policymakers plan their COVID-19 responses, policymakers should remember a simple rule of thumb: let “W” stand for premature “withdrawal” of public-health or economic-stimulus measures. As previous crises have shown, such proposals should be avoided like the plague.


Of course, a cure or vaccine would be a game changer. But even in the best-case scenario, testing and approving any breakthrough could take a year and a half. If economic activity remained severely depressed for that long would, the status of the current recession would be confirmed as by far the worst since the Great Depression of the 1930s.

But there is an even more devastating scenario: a prolonged W-shaped recovery, caused by political leaders’ failure to heed the lessons of history. Two policy mistakes – echoing those made in the interwar period – seem particularly likely.

The first mistake – toward which many leaders, beginning with US President Donald Trump, have already shown a dangerous predilection – would be to declare “victory” over the virus prematurely, abandon public-health interventions, and allow a second wave of infections to take hold. That is what happened during the so-called Spanish flu pandemic a century ago. The first wave hit the US in early 1918. The second wave, in September 1918, was far deadlier. The third wave persisted into 1920.

In 1918, like today, cities instituted social-distancing measures, including school closures, prohibitions on public gatherings, and face-mask requirements. But delayed action was common, and few maintained the interventions for long. A 2007 study from the National Academy of Sciences found that US cities’ success in reducing the number of deaths “was often very limited because of interventions being introduced too late and lifted too early.”

In fact, nobody upheld the public-health interventions as long as they should have. San Francisco reduced mortality by at least 25% – the highest rate among US cities. But, rather than reinforcing its commitment to its interventions, this success led the city to cancel its restrictions in November; a second, much deadlier wave of infections followed in December and January. Had San Francisco sustained its social-distancing rules for longer, the National Academy of Sciences estimates, it could have cut the death toll by 95%. 

Political leaders might also abandon economic stimulus too soon – the second mistake that could lead to a W-shaped recession. The events of 1936-37 in the US show just how devastating this decision can be.

In 1936, satisfied with progress in recovering from the depression that had begun seven years earlier, President Franklin D. Roosevelt’s administration curbed federal spending and raised taxes. At the same time, the US Federal Reserve tightened monetary policy, doubling bank reserve requirements and sterilizing gold inflows. By 1937, the US economy had relapsed into a severe recession, which lasted through 1938.

Articles on 1897 Plague in India

May 4, 2020

My article on how 1890s plague impacted banking and business conditions, has led to a lot of interest on the topic.

Two more articles:

When the 1897 bubonic plague ravaged India by Aanchal Malhotra in Mint. Aanchal’s great-great grandfather, Lala Bidhi Chand was a plague inspector in Punjab and she draws history from his records.

At the onset, the British authorities took little action to stop the spread, keeping ports functional so as not to disturb their global trade networks. They ascribed the outbreak to habits and local customs, blaming the living spaces of Indians for being filthy and unsanitary, entirely overlooking environmental factors such as the trade ships from China that also carried flea-infested rodents. These could get into places like granaries, particularly in rural areas, where many people shared space or resources.

However, as the situation spiralled out of control, they hastily drafted the Epidemic Diseases Act of 1897, which had “the power to take special measures and prescribe regulations as to dangerous epidemic disease” and is still enforced throughout the country. In light of covid-19, social distancing may have quickly become the phrase of 2020 but even in the late 19th century, the intention was the same, with The British Medical Journal stressing that “until overcrowding is dealt with, all other methods of preventing the spread of plague are abortive”.

The Punjab region—suffering recurrently from outbreaks of malaria, smallpox and cholera—was one of the worst affected, with the plague erupting violently across 26 districts. The first case occurred in Khatkar Kalan village on 17 October 1897, and until 1899, the plague remained confined to the Jullundur and Hoshiarpur districts. It is here, in these early affected areas, that my great-great grandfather, Lala Bidhi Chand, served his “Plague Duty” as a deputy inspector with the Imperial Indian Police.

Based on his police records—certificates from 1874 as a Sergeant 2nd grade to 1904, with promotions in rank, as a full deputy inspector—one can roughly calculate his birth back to the mid-19th century. The son of Atma Ram, a Pathan of Qadirabad, district Gujarat, Punjab (in present-day Pakistan), Bidhi Chand was fluent in Farsi, Urdu and Punjabi. Though we know little about the occupation of generations prior, we can assume they were comfortable enough to provide him an English-medium education, which was naturally beneficial to his appointment to the police service.

His documents show him serving across the Punjab, in the districts of Sargodha, Mandi Bahauddin, Gujranwala, Jhelum and Rawalpindi. He was appointed to census duty in 1891 and, more relevantly, to plague duty in 1898. According to the commendation certificate for Bidhi Chand’s work from 2 March-13 July 1898, “The duty was of an exceedingly trying and delicate nature, and involved considerable hardship, exposure and personal risk.”

The Government Will Come To Its Senses’ Calcutta’s Workers and the Plague of 1898 by Prerna Agarwal in The India Forum. This article shows how protests in Calcutta started from the plague:

The plague of 1898 brought Calcutta’s workers out into the streets to strike against low pay & forced inoculation. The disorders during the epidemic gave the working class their first opportunity to organise themselves & to build up the city’s labour movement.


On 3 May, after the declaration of a plague inoculation drive, panic spread among the city’s poor that they would be forcibly inoculated. They believed that inoculation could even kill healthy people and prepared to defend themselves by any means.

The disorders that ensued were not merely defensive. Workers took the opportunity to temporarily overturn the existing social order. What followed were scenes that could not be imagined in normal times, scenes of a world turned upside down.

 More than a thousand workers of the Carriage and Wagon Works at Howrah went on strike on 3 May 1898. Even the remaining two thousand workers who came to work in the morning did not go back to work after their morning meal-break. They collected at the front of the gates of the workshop and “began discussing the inoculation question.

Both are nice pieces to read…

Case of CKP Co-operative Bank Ltd: India’s banking problems are not going anywhere?

May 4, 2020

Over the weekend, RBI cancelled licence of CKP Coop Bank:

The Reserve Bank of India (RBI) has, vide Speaking Order No DOR.CO.AID/LC-02/12.22.035/2019-20 dated April 28, 2020 cancelled the licence of The CKP Co-operative Bank Ltd., Mumbai, to carry on banking business, with effect from the close of business on April 30, 2020. The Registrar of Co-operative Societies, Pune, Maharashtra, has also been requested to issue an order for winding up the affairs of The CKP Co-operative Bank Ltd., Mumbai and appoint a liquidator for the bank.


Consequent to the cancellation of its licence, The CKP Co-operative Bank Ltd., Mumbai, is prohibited from conducting the business of ‘banking’ which includes acceptance of deposits and repayment of deposits as defined in Section 5 (b) read with Section 56 of the Banking Regulation Act, 1949 with immediate effect.

 With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of The CKP Co-operative Bank Ltd., Mumbai, as per the DICGC Act, 1961 will be set in motion. On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of ₹ 5,00,000/- (Rupees Five lakh only) from the Deposit Insurance and Credit Guarantee Corporation (DICGC) as per usual terms and conditions.

This makes CKP Coop Bank as the first to benefit from rise in deposit insurance of Rs 5 lakhs. Actually, the bank’s depositors are lucky as the bank has been under trouble since 2014.

In 2016, RBI press release says:

The Reserve Bank of India notified that CKP Co-operative Bank Ltd, Mumbai, Maharashtra, was placed under directions for a period of six months vide directive dated April 30, 2014 from the close of business on May 2, 2014. The validity of the directions was extended four times, vide directives dated October 21, 2014 for a period of three months; January 20, 2015 for a period of six months; July 9, 2015 for a period of three months and October 28, 2015 for a period of three months. It is hereby notified for the information of the public that the period of operation of the directive dated April 30, 2014 read with directives dated October 21, 2014, January 20, 2015, July 9, 2015 and October 28, 2015 has been extended for a further period of six months from January 31, 2016 to July 31, 2016 vide Reserve Bank directive dated January 19, 2016, subject to review and subject to the following modification:

“A sum not exceeding ₹10,000/- (Rupees ten thousand only) of the total balance held in every savings bank or current account or term deposit account or any other deposit account (by whatever name called), may be allowed to be withdrawn by depositor, provided that wherever such depositor is having liability to the bank in any manner, i.e. either borrower or surety, including loans against the bank deposits, the amount may be adjusted first to the relevant borrowal accounts.”

Things did not improve in the next 4 years leading to this cancellation. RBI explains the reasons:

The Reserve Bank cancelled the licence of the bank as:

    1. The financial position of the bank is highly adverse and unsustainable. There is no concrete revival plan or proposal for merger with another bank. Credible commitment towards revival from the management is not visible.
    2. The bank is not satisfying the requirement of minimum capital and reserves as prescribed in Section 11 (1) read with Section 56 of the Act and capital adequacy and earning prospects as stipulated in Section 22(3)(d) of the Act and also stipulated minimum regulatory capital requirement of 9%.
    3. The bank is not in a position to pay its present and future depositors, thereby not complying with Section 22(3) (a) read with Section 56 of the Act.
    4. The affairs of the bank were and are being conducted in a manner detrimental to the public interest and interest of the depositors and that the general character of the management of the bank is prejudicial to the interest of depositors as also public interest. Thus, the bank has not been complying with provisions of Section 22 (3)(b) and (c) of the Act.
    5. The bank’s efforts for revival have been far from adequate though the bank has been given ample time and opportunity and dispensations. No merger proposal has been received in respect of the bank. Thus, in all likelihood, public interest would be adversely affected if the bank were allowed to carry on its business any further.
    6. No useful purpose would be served by allowing the bank to continue as envisaged in Section 22(3)(e) of the Act. Rather, Public interest would be adversely affected if the bank is allowed to carry on its banking business any further.

Dinesh Unnikrishnan has a nice piece in moneycontrol explaining what led to failure of CKP. It apparently had NPAs worth 97%!

Also my earlier piece on failures in coop banks: From Madhavpura Mercantile To PMC Bank: Why Little Has Changed In Cooperative Banking



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