Archive for the ‘Indian Economy/Financial Markets’ Category

Move over Greenspan/Bernanke/Powell Put, time to look at Das Put?

March 25, 2019

Mint op-ed piece today:

A $5-billion, three-year dollar-rupee swap by the central bank with commercial banks to primarily increase “durable” liquidity in the system is bound to have multiple ripple effects. The first obvious outcome will be a definite increase in liquidity when RBI buys dollars and releases rupees in the market. Second, the surge of liquidity, combined with a downward pressure on premiums for near-term forward contracts, will influence interest rates in the economy. Third, RBI has often expressed its concern over rupee-dollar trades moving to the non-deliverable forward markets of Singapore, Dubai and London. This swap might draw some of that activity back to local markets. Fourth, the appreciation of the rupee since the forex swap announcement on 13 March—over 1% till 22 March—seems to indicate that India’s central bank now has a higher tolerance level for its rise against the dollar.

Despite these certain outcomes, the governor’s actions can be viewed through different lenses. In some ways, his adoption of this curious liquidity tool to increase systemic liquidity can also be seen as his way of ensuring that Indian markets do not search for new bottoms.

Till market closing on 22 March, the BSE Sensex had gained 1.7% since the swap was declared. Comparisons are being made with a market strategy adopted when Alan Greenspan was chairman of the US Federal Reserve, which came to be known as the “Greenspan put”; in simple words, players expected the Fed to intervene by easing its monetary policy every time markets hit a speed-breaker. This pretty much continued till the financial crisis erupted and forced a rethink of the Fed’s dominant tenets.

Scheduled this week, RBI’s swap will have one obvious outcome: higher dollar inflows as lower hedging costs encourage Indian companies to borrow more overseas and foreign portfolio investors find rising returns from rupee assets.

Too early to say whether there is Das Put or not. But then central bankers have pretty much boxed themselves into these put options. One is always pressurised to do something when financial markets begin to decline significantly….


Reliving and retracing Francis Buchanan’s 200 year old journey to figure Southern India..

March 25, 2019

This is as good a project as any to understand economic and social history in Southern India. The lessons can obviously be applied elsewhere as well:

With the fall of Tipu Sultan in 1799, the East India Company consolidated their control over erstwhile Mysore. As part of the process, they appointed Francis Buchanan, a Scottish physician and geographer, to survey parts of southern India, for which he traversed through lengths and breadths of southern India collating information, statistics, oral-histories on a range of physical, political, cultural, social and economic subjects.

Buchanan did this journey from 24-Apr-1800 to 5-Jul-1801 with his team. They travelled a distance of some 4000 km with 20-25 kms everyday. They halted at some 300 locations. Later he prepared a 3 volume based on his journeys whose title says it all:


131 CAs debunk allegations of India’s ‘shambolic economic statistics’

March 18, 2019

One would imagine another set of economists debunking claims by 108 economists that state of Indian macro data is not in order.

But, the debunk has come from Chartered economists!


IDBI Bank re-categorised as private sector bank..

March 15, 2019

I had written on this interesting history of IDBI as a Development Financial Institution which started in 1964.

In 1990s, IDBI started a new bank as part of Govt/RBI policy to open new private banks. Then in 2005, IDBI Bank merged into IDBI and became a commercial bank. Thus, it came back into public sector.

Post LIC’s acquisition of IDBI Bank, it is back into private sector.


Airport anthropology and new behavioural patterns

March 15, 2019

Ramakant Bijapurkar in this interesting piece in Mint observes ongoing changes in Indian airports. No more are Indian airports clones of western airports but are having their own regional identities:


Indian economists/social science researchers raise red flags over interference in data estimation…

March 15, 2019

108 Indian economists/social science researchers have issued this joint statement:


Time to look at kidney markets in India?

March 14, 2019

The frequency with which kidney (or organ) scams have been emerging in India is alarming. It started with the infamous Gurgaon scam in 2008 wherein a Gurgaon-based doctor was caught in a kidney transplant racket. During that time, a loophole in Transplant of Human Organs Act (1994) led to the scam. The Act only allowed “near relatives” (parents, children, brother, sister and spouse) to donate organs and prohibiting commercial transactions. However, a donor could donate his organs before his death to any person (i.e., not his relative) “by reason of affection or attachment towards the recipient or for any other special reasons.” This legalese can lead to all kinds of interpretations and possible scams.

I had written about the issue in the newly printed Mint newspaper in 2008. It was also special as it was my debut piece for any newspaper.

I had highlighted the work of Prof Alvin Roth in the article. In his work, Prof Roth highlights how we do not think of markets and economics when it comes to repugnance goods such as human organs, horse meat and so on. The laws against buying or selling kidneys reflect a reasonably widespread repugnance, making it difficult for arguments that focus only on the gains from trade to help in changing these laws. Apart from repugnance there are also issues of morality as highlighted by Prof Michael Sendel of Harvard University.

Roth advocates not just the need to get over repugnance but also designing commercial markets for kidney donation. As it was difficult to move towards a commercial market right away, he suggested a swap exchange and chains in case of mismatch between several pairs via algorithms. This eased the congestion in the demand and supply for kidneys. The Indian government also allowed for two-pair exchange as shown above, perhaps inspired by Roth.

Since then, Prof Roth has become the recipient of the Nobel Prize in economics in 2012 (jointly with Prof Lloyd Shapley) “for the theory of stable allocations and the practice of market design”.

We have also made changes in the Organs Act with two amendments in 2011 and 2014.

In 2011, “near relative” was expanded to include grandparents and grandchildren. The bill permitted a pair of donor and recipient who are near relatives but whose organs do not medically match for transplantation to swap organs with another pair of such persons. It was decided to maintain a national registry of donors.

In 2014, a transplant was allowed even if the two parties were not ‘near relatives’ with a condition. There will be an Authorisation Committee which shall evaluate and confirm absence of commercial transaction between the recipient and the donor. Technology was brought in with display of donors and recipients to be displayed on the notice board within 24 hours of grant of permission or rejection of transplant. Every transplant centre should have a website inter-linked with other centres for sharing information.

However, none of these measures have been enough. The scams keep emerging fairly frequently. The recent scam which broke out in Kanpur shows not just deep inter-state linkages but even foreign ones with people tricked on both sides of demand and supply. Even more worrisome is that masterminds of 2016 scam are believed to be behind this scam as well, while being on a bail!

Perhaps, it is time to revisit ideas of Prof Roth.

Interestingly, Iran is the only country which allows for such a market. Prof Farshad Fatemi of Sharif University of Technology explains functioning of Iran’s kidney market ( The political troubles in 1980s along with economic sanctions led to lack of funds. There was scarcity in dialysis equipment which encouraged nephrologists to perform kidney transplants. The huge demand and supply mismatch forced the authorities to establish a regulated market for living unrelated donations. Under this, the donor receives a monetary compensation from the recipient and enjoys additional monetary and non-monetary bonuses from the government. Fatemi even points to lessons from behavioural economics to improve donations. We could nudge countries to shift from an opt-in system to an opt-out system. Spain follows an opt-out system and has highest rates of cadaveric donations in Europe.

Recent research by Julio Elias, Nicola Lacetera and Mario Macis shows that people are willing to trade-off deep dislike for higher efficiency. The topic has gained a lot of traction recently as the Institute of New Thinking has a series of videos with top thinkers discussing the several issues:

So, should we have a market for kidneys in India? Some observers might point that we are already moving towards a market. We have moved from only ‘near relatives’ to ‘non-relatives’ provided there is a ‘visible hand of the committee’ which confirms there is no commerce involved between the two parties.  Even the idea of displaying the decision within 24 hours is nothing but an attempt to move towards transparency.

The next step could be a move to a more ‘invisible hand’ approach where more markets than committees can decide the transplant.

But for this, we first need to think about the repugnance and morality which come with the very idea of this market and is an equally important topic.  A market driven approach could also lead to inequality as only those with higher incomes will be recipients and those in sheer poverty will be the most likely donors.

Challenges of plenty actually.


How WhatsApp forwards are ‘powering’ India GDP growth

March 13, 2019

Vivek Kaul in this satire titled Mint piece dispels the hype around India growth story.


RBI’s museum at Calcutta

March 12, 2019

It was really surprising to see this logo on the homepage of RBI’s website:

The RBI Museum

On clicking, one realised it is RBI’s museum at Calcutta. There is one in Mumbai in Fort area too.

The Calcutta museum website says:

Welcome to the The Reserve Bank of India Museum. The Museum will immerse you in a one-of-a-kind experience that explains the money, its role in the economy and your role in it, in a fun and interactive way. 

You can also explore how money has evolved over the centuries, how and why gold still holds an important place in our society and also about the genesis of RBI. The Museum also features a 7 ft. ‘Yap’ Stone, an interactive exhibit on gold mining, a 12 ft. high sculpture and much more. 

You can read more about ‘The RBI Museum’ in this brochure here and get a preview of the exhibits. Engage in a hands-on journey through exhibits that are brought to life through interactive displays, games, sculptures and videos.

Wow! It rarely happens that India’s museums welcome people. It is also nice that RBI has put up the link to the museum on its homepage. One is wondering, whether RBI is listening to the constant cry of this blogger to include history in its analysis? Too much to imagine but this is welcome…


ILFS fallout on GIFT city’s future

March 12, 2019

GIFT City is a 50:50 JV between IL&FS and state government-owned Gujarat Urban Development Company.

Maulik Pathak of ToI reports that with IL&FS in trouble, future of GIFT City is also in jeopardy. The State Government is likely to take the 50% stake but there are complications.



The fiscal health of states and the limits of federalism

March 12, 2019

V. Anantha Nageshwaran in his new article points to this new book by Dr YV Reddy on fiscal federalism. It is co-authored with Mr. GR Reddy, adviser to the government of Telangana.

Anantha takes us through the release of the book which is critical of the terms of reference of 15th Finance Commission:

On 8 March, I had the privilege and honour of being a panellist at an event organized at the Madras School of Economics for the release of the book Indian Fiscal Federalism authored by Y.V. Reddy, former governor of the Reserve Bank of India (RBI), and G.R. Reddy, adviser to the government of Telangana. The book was released by C. Rangarajan, another former RBI governor and chairman of the 12th Finance Commission.

Y.V. Reddy, with his self-deprecating humour, used to begin his speeches (during his tenure as chairperson of the 14th Finance Commission) by saying that he did not need an introduction but only a conclusion. He would be alluding to his tendency to couch his views and opinions as self-evident questions, leaving the audience and readers to draw their own inferences.

He has been speaking his mind on many issues of late, and in his co-authored book Indian Fiscal Federalism, he continues that practice. For example, he pulls no punches while talking of the functioning of Niti Aayog and about the Terms of Reference (ToR) of the 15th Finance Commission. Take this bit for instance: “Just a day after the presentation of the report of the Sub-group of Chief Ministers on rationalization of Centrally Sponsored Schemes, the Ministry of Finance issued a notification without taking on board most of the recommendations.” In another instance, he writes that the scope and remit of the Niti Aayog had been expanded and its stature reduced, with the result that there was little evidence of focus in its working.

The authors are quite critical of some of the “Terms of Reference” of the 15th Finance Commission. While they have sympathy for the use of the population figures of 2011, they feel that the union government directing the Commission to take “expenditure on populist welfare measures” into account while devising performance-based incentives is as problematic as many of the other criteria spelt out for determining performance-based incentives. For example, achievements in the implementation of the flagship schemes of the government of India cannot be a criterion. Some of the schemes may not be necessary or relevant for some states.

Interestingly, I had pointed to this paper by Kerela’s State Finance Minister Dr Issac (co-authored) which discusses the same points.

Looking forward to reading Dr Reddy’s book..

Banks That Are No More: From Tagore’s Union Bank To Shetty’s Vijaya Bank

March 12, 2019

My new piece in Bloomberg Quint (behind a paywall)..

As Vijaya Bank and Dena bank are merged with Bank of Baroda, they join the long list of banks which were once mighty but have faded in memory. In the article, I look at a few of such banks.

SBI links deposit, loan interest to repo rates..

March 11, 2019

In a surprising move over the weekend. SBI decided to link its deposit and lending rates with RBI’s repo rate on selected products.

Hiral Thanawala of moneycontrol reports on this move:


Challenges to Indian Fiscal Federalism

March 11, 2019

It is not too often that one gets to see Finance Minister of a State (even at centre) writing a research piece in EPW. Kerala’s Finance Minister T.M. Thomas Issac (who holds a PhD from CDS) coauthors a piece on fiscal federalism along with R Mohan and Lekha Chakraborty.

They say not all is well in India’s fiscal federalism with States on the wrong side of the equation:

Are we quite far from what cooperative federalism envisages? Assessing the trends in tax devolution, the experience with the FRBM acts in the light of the recommendations of the FRBM review committee, the structure of GST, the ToR of the Fifteenth Finance Commission, and the obstacles in the decentralisation process, the hypothesis cannot be rebutted.

As revealed by many studies, the performance of tax revenue in India is below its potential. This limits not only the spending capacity of the centre, but also the amount of taxes devolved to the states. Besides, what is constitutionally sought to be devolved to the states is not being done in its spirit by the centre, which imposes surcharges and cesses as a means of raising revenue, without the same being part of the divisible pool of taxes shareable with the states. There also exists non-transparency in the computation of net proceeds.

The FRBM acts have imposed an asymmetric burden on the state governments in the face of non-compliance to the targets by the central government. This is sought to be accentuated by the recommendations of the FRBM Review Committee, 2017. The rate apportionment and voting rights in the GST Council are not in accordance with the principles of cooperative federalism, in which decisions are to be taken by a consensus among equal stakeholders. The decentralisation of the LGs is impeded by the asymmetry in centre–state relations.

The ToR of the Fifteenth Finance Commission, which is the last in the chain of events, hastens the process of centralisation and if implemented, cooperative federalism would only exist in name, devoid of any content whatsoever. Fundamental changes are needed to make cooperative federalism a meaningful and functioning one.

The authors point to some interesting fiscal trends.


50 years of Rajdhani Express

March 6, 2019

The first journey was between Howrah and Delhi on 3 March 1969. After the Delhi-Howrah Rajdhani, several other Rajdhanis were started connecting the capital to several other cities. It has been 50 years since and Rajdhani continues to capture our imagination.

There are some interesting tributes to this landmark anniversary:

From HT which has fair bit of history:

In 1960, the Railway Board in India decided to undertake a study to achieve increased speed for its trains, says an Eastern Railway spokesperson. For the past 100 years the maximum speed on broad gauge in Indian Railways had been restricted to 96 km/hour. A target of 160 km/h for passenger traffic and 100 km/h for goods traffic with an intermediate stage of 120 km/h for passenger traffic was laid. Work started from 1962. And then, as a Hindustan Times report in 1969 states, “tests began in 1967… The diesel locomotives and coaches were tested under all conditions including heavy rains.”

Finally, on March 1, 1969, the Rajdhani Express, the country’s fastest train at the time with a speed of 120km/hr, was flagged off from New Delhi to reach Howrah the next morning. The first journey from Howrah was on March 3. “It was called the Rajdhani because it would connect the country to the capital, Delhi,” recalls senior Supreme Court lawyer Anoop Bose, whose late brother, Adhip, was among the passengers on the first train. Bose had gone to see off his brother, and remembers seeing then railways minister Ram Subhag Singh garlanding the train, before flagging it off. The Rajdhani covered the distance between Delhi and Howrah in approximately 17 hours, where earlier trains had taken at least 24 hours for the same.



Mumbai’s blinkered vision of development: sacrificing ecology for infrastructure

March 6, 2019

Prof Amrita Sen and Harini Nagendra of APU in this EPW research:

Drawing on a discussion of five infrastructure projects in Mumbai, the lack of comprehensive focus in policy on environmental issues is highlighted. A project-wise focus and an unsustainable pattern of urbanisation have distanced the city development plans of Mumbai from achieving essential, interdependent goals of ecological health, environmental justice, and well-being.

Applies to most cities in India.

Assessing possible causes of shortfall in GST revenues and its implications

March 6, 2019

Prof Sacchidananda Mukherjee of NIPFP writes a useful paper on GST.

He says there is a possibility of shortfall in revenues from GST based on budget accounts. This could have wider implications:

a) Upto June 2022, revenues of states under GST are protected. So far there will be no impact on State Finances on account of Own Tax Revenue collection. However, if the GST revenue shortfall continues, Union Government will face fiscal stress and it will spillover to state finances in terms of lower tax devolution and grantsin-aid transfers.

b) The estimated shortfall in GST collection is Rs. 197,210 crore or 8.77 percent of Gross Tax revenue in 2018-19. If the share of states in central transfers (on account of tax devolution and grants-in-aids) remains unchanged at 55.4 percent of GTR, the expected fall in central transfers would be Rs. 109,254 Crore in 2018-19.

If states do not increase their revenue mobilization, they may require containing their expenditures to meet the FRBM targets. There may be demands from States to give relief from the FRBM targets, so that they could continue with present level of expenditures. It may build up public debt and may cause stress on state finances in future.


It also discusses the impact on State Finance after GST Compensation Period is over..

Lessons from India’s first elections..

March 5, 2019

Fascinating piece by Karthik Venkatesh and Sara Sohail.

There was a time when political leaders wrote articles worried about rise of their own power and personality cult.

Book review of Harilal and Sons: Family Narrative as Business History

March 4, 2019

Sujit Saraf wrote this novel by the name Harilal and Sons:

It is the year 1899. In the north western corner of British India, the Chhappaniya famine stalks the desert region of Shekhavati. A despairing shopkeeper turns to his young son and says, ‘This land has nothing to offer us but sand dunes and khejra bushes.’ Soon after, twelve-year-old Harilal Tibrewal, recently married to eleven-year-old Parmeshwari, sets off, alone, for the densely populated plains of Bengal in eastern India—travelling on camelback and by bus, train and boat to arrive in Calcutta, two thousand kilometres away.

In his new novel, Sujit Saraf takes readers on an epic journey from Shekhavati in Rajasthan to the Calcutta of the early twentieth century, to Bogra in East Bengal and to a village in Bihar in newly independent India. A sprawling, compulsively readable narrative, it follows the story of Harilal as he sets up Harilal and Sons, a shop selling jute, cotton, spices, rice, cigarettes and soap, that grows into a large enterprise. It is also the sweeping tale of his two wives and ever-burgeoning family of sons, daughters, grandchildren, great-grandchildren and great-great-grandchildren—the two strands of family and business inextricably fused because a Marwari’s life is defined by what he ‘deals in’. The novel ends in 1972, as eighty-five-year-old Hari lies dying in the great mansion that he built but never actually lived in. Surrounded by his vast family he wonders why he is still so attached to them. Why has he not reached the third stage in life, the stage of detachment, that his schoolmaster had said he would?

Spanning seven decades of an era that saw great tumult in India and Bangladesh, Harilal and Sons is a wonderfully evocative, powerful and capacious narrative—overflowing with a profusion of characters, events and places—contained within the singular life of one man who ‘dealt in jute and grain’.

Thomas Timberg who wrote the famous book on Marwaris in this book review in EPW says this novel could be used to figure business history. He says the story closely resembles that of GD Birla:


Universal Basic Income in the Developing World

March 4, 2019

Two interesting articles on UBI.

First is this new NBER paper by Abhijiet banerjee, Paul Niehaus and Tavneet Suri:

Should developing countries give everyone enough money to live on? Interest in this idea has grown enormously in recent years, reflecting both positive results from a number of existing cash transfer programs and also dissatisfaction with the perceived limitations of piecemeal, targeted approaches to reducing extreme poverty. We discuss what we know (and what we do not) about three questions: what recipients would likely do with the incremental income, whether this would unlock further economic growth, and the potential consequences of giving the money to everyone (as opposed to targeting it).

Bottom line:

First, the benefits of targeting may be overestimated by analyses that do not take into account the incentives it generates or the realities of implementation on the ground. Universal or near-universal approaches deserve more consideration than they often receive.

Second, the kinds of targeting that will make most sense will often be relatively simple, such as geographic targeting. Designers should guard against creating too much discretion for the front-line staff who implement targeting, including the implicit discretion that is created when a policy is too
complicated for beneficiaries to understand it and hold local officials to account. However, these targets may perform extremely poorly in reaching the poor.

Third, it may be possible to build small ordeals into the design of programs to create some targeting by self-selection and hence make programs more progressive. For example, if a government offered a small basic income to everyone but with some hassle costs involved in collecting it (e.g.
a weekly trip to an ATM), then the wealthier households might simply not bother to participate. The danger here of course will be to not exclude those for whom the ordeals are simply too difficult (e.g. the disabled) and so special provision should be made for them.

Finally, we note that the per-person costs of delivering transfers are falling rapidly in many places due to advances in last-mile digital payments infrastructure. All else equal this will tend to further increase the appeal of broad or universal targeting.


Mint features this interview of Prof Guy Standing of  School of Oriental and African Studies, University of London. He says instead of spending billions on subsidies and government programs, one should just transfer a basic income universally:


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