Archive for the ‘Indian Economy/Financial Markets’ Category

Should RBI have a Deputy Governor based outside Mumbai?

November 21, 2019

RBNZ recently instituted a new DG position based out of Auckland.

I review this interesting development and ask whether RBI should do the same?

The many fountainheads of India’s economic malaise

November 21, 2019

Dr Manmohan Singh wrote an oped in Hindu titled: The fountainheads of India’s economic malaise. The oped was widely discussed and trolled.

Dr Ananth Nageswaran reviews the oped on his blog:

An opinion piece written by Dr. Manmohan Singh has justifiably attracted a lot of eyeballs and nods of approval. Written by a ‘student of economics’ as he describes himself, it is a well written essay. He has also zeroed in on some answers. Restore trust and confidence in administration, in the institutions and unleash massive fiscal stimulus.

He is right to call for an elimination of the atmosphere of fear. Some of us had written about it much earlier. See here and here. The government too has recognised the problem. That is why the Finance Minister recently announced a remote system for the issuing of notices and summons. She said that permission from a two-member collegium was necessary to prosecute tax defaults below Rupees 25.0 lakhs. To be sure, Revenue might resist and is resisting the changes. That behavioural issue transcends this government. On its part, the government has recognised the problem. The government-constituted panel has proposed decriminalizing many of the offences under the Company Law. The sooner its recommendations are implemented the better.

More importantly, the reposing of trust in industry was exemplified by the new corporate income tax regime the Finance Minister announced in September. It provided for low tax rates with fewer exemptions and announced a very low rate of 15% for new manufacturing oriented companies commencing production from 2023. Yours truly wrote that the significance of that measure was not the measure itself but the signal it sent. The government was no longer bogged down by the ‘Suit boot ki Sarcar’ jibe. Indeed, that jibe should remind Dr. Manmohan Singh as to the role of the Congress Party in creating an atmosphere of distrust between the government and the industry. That deserves some further explanation.


In Ahmedabad’s walled city, citizens see red over blue heritage properties

November 19, 2019

Interesting ToI piece on tagging heritage properties.

Ahmedabad earned the tag of heritage city. The municipality is putting blue boards to show which properties are heritage. This concerns people as now they are not sure whether their property remains private and they can repair/sell their properties at will.


How India’s growth (read finance) bubble fizzled out: India since 1991

November 18, 2019

Anantha Nageswaran and Gulzar Natarajan’s recent book is on how finance has captured the world growth since last 25 years.

Financialisation, or the disproportionate importance of financial considerations in economic decisions, has been a defining feature of the economic history of the last twenty-five years. The wave of deregulation that accompanied the neoliberal agenda in the US, aided by the dominance of US dollar and American economy, has resulted in the globalisation of finance. This book examines the rise of financialisation globally, while charting its drawbacks and prescribing suggestions for a definitive overhaul of the structure. Bringing together various strands of the latest research and evidence generated in recent years, empirical analysis, and views of reputed experts in the field, it presents a counter-point to the canonical ideas of analysing financial market dynamics and financial globalisation. It proposes a revision of the current monetary policy paradigm to correct its excessive focus on equity markets and their ‘wealth effect’, embrace a more symmetric response to the economic cycle, and a mandate to focus on financial stability as much as price stability.

In a recent Mint piece, Ashoka Mody points India’s story is no different.  Much of India’s growth since 1991 was finance driven The recent slowdown is part of a wider problem and will not be addressed anytime soon.

India’s gross domestic product (GDP) growth has slowed sharply from 8% a year last year to 5% in the second quarter this year. Optimists, Indian and international, say growth will pick up soon. The International Monetary Fund (IMF) projects the Indian economy will hum at 7.5% a year by 2021. Such optimism is dangerous.

GDP growth could, in fact, fall and languish in the 3-to-5% a year range. The ongoing slowdown is not a short-term disruption. Rather, a financial bubble that began inflating nearly three decades ago is finally fizzling out.

Indian policymakers have patted themselves on the back during these past growth years. They have relied on a narrow vision of economic liberalization, which could do little to generate long-term growth but which did create deep financial pathologies and inequalities.

Meanwhile, India has lagged woefully in creating the human capital and urban infrastructure needed for a modern, competitive economy. Without these prerequisites, India is bereft of a growth model.


Conference on 50 years of bank nationalisation: Indian Banking at crossroads

November 18, 2019

Ahmedabad University organised Conference on 50 years of bank nationalisation: Indian Banking at crossroads. The conference was held over 2 days – 16th and 17th November 2019.

Ahmedabad University was so fortunate to hear so many experts over the 2 days. Apart from the expert sessions, we had research papers presented across 8 sessions. It is really great to see Ahmedabad University contributing to the cause of research on Indian banking.

The conference started with inaugural remarks from RBI Governor Mr Shaktikanta Das. The Governor gave a sweeping account of various developments in banking and NBFCs.

The Governor’s speech was followed by a masterclass from Dr C Rangarajan who continues to enthrall us all with his insights and  erudition. It was quite something to see so many people coming to meet and click selfies with Dr Rangarajan. You know why he is considered as a pilgrimage of Indian economy.

I will post more on the conference overtime….

Changes in India’s Macroeconomic Perceptions: Evidence from the Survey of Professional Forecasters

November 12, 2019

Sanjib Bordoloi, Rajesh Kavediya, Sayoni Roy and Akhil Goyal of RBI in this Nov-19 Monthly Bulletin article:

This article presents an analysis of annual and quarterly forecasts of major macroeconomic variables in the Reserve Bank’s bimonthly survey of professional forecasters (SPF). Forecast of output growth and CPI inflation for 2018-19 and 2019-20 was revised down. The forecast path of exclusion based CPI inflation was gradually revised up for 2018-19 but lowered for 2019-20. Forecast performance improves with reduction in forecast horizon, indicating forecasters’ tendency to update their forecasts with incoming information and provide more accurate estimates as they approach closer to the final estimate of the underlying indicator. The forecasts are found efficient for headline CPI inflation and exclusion based CPI inflation. Disagreement measures for GVA growth
have remained close to its medium term average for all the forecast horizons in the recent period. The general behaviour of the inflation uncertainty largely shows that uncertainty moderated since November 2018.


Union Bank of India completes 100 years!

November 11, 2019

Union Bank was established on 11 Nov 1919. Today it completes 100 years and enters 101st year.

Many more anniversaries to the bank..

The End of Neoliberalism and the Rebirth of History

November 8, 2019

Joseph Stiglitz in Proj Syndicate:

For 40 years, elites in rich and poor countries alike promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. Now that the evidence is in, is it any wonder that trust in elites and confidence in democracy have plummeted?

Neoliberal was hardly liberal and was actually intolerant to other views, The biggest victim was macroeconomics:

The reality is that, despite its name, the era of neoliberalism was far from liberal. It imposed an intellectual orthodoxy whose guardians were utterly intolerant of dissent. Economists with heterodox views were treated as heretics to be shunned, or at best shunted off to a few isolated institutions. Neoliberalism bore little resemblance to the “open society” that Karl Popper had advocated. As George Soros has emphasized, Popper recognized that our society is a complex, ever-evolving system in which the more we learn, the more our knowledge changes the behavior of the system.

Nowhere was this intolerance greater than in macroeconomics, where the prevailing models ruled out the possibility of a crisis like the one we experienced in 2008. When the impossible happened, it was treated as if it were a 500-year flood – a freak occurrence that no model could have predicted. Even today, advocates of these theories refuse to accept that their belief in self-regulating markets and their dismissal of externalities as either nonexistent or unimportant led to the deregulation that was pivotal in fueling the crisis. The theory continues to survive, with Ptolemaic attempts to make it fit the facts, which attests to the reality that bad ideas, once established, often have a slow death.

If the 2008 financial crisis failed to make us realize that unfettered markets don’t work, the climate crisis certainly should: neoliberalism will literally bring an end to our civilization. But it is also clear that demagogues who would have us turn our back on science and tolerance will only make matters worse.

The only way forward, the only way to save our planet and our civilization, is a rebirth of history. We must revitalize the Enlightenment and recommit to honoring its values of freedom, respect for knowledge, and democracy.


40th anniversary of Sukhamoy Chakravarty paper: Debates raised in the paper resonate today

October 30, 2019

The academia in west celebrates and reflects on anniversaries of famous research papers. For instance, Friedman’s 1968 paper on limits of monetary policy, Douglass North’s 1968 paper on shipping productivity and so on.

We in India first barely have a list of such papers and second there is hardly any reflection on their anniversaries.

In this aspect, it is really nice to read this Mint article by Niranjan Rajyadhaksha (who else) who reflects on 40th anniversary of a research paper by Sukhaomoy Chakravarty. The paper was titled as On the Question of Home Market and Prospects for Indian Growth and was published in EPW.

Niranajan writes:


Doing Business Rankings: How the World Bank influences national regulatory policy..

October 25, 2019

India jumping to 63rd rank in Doing Business Rankings is talk of the town.

Beth Simmons (Wharton), Judith G. Kelley (Duke University) and Rush Doshi (Brookings Institution) in a paper discuss how these rankings influence policy.

In this K@W discussion, the authors discuss key ideas behind the paper:

Knowledge@Wharton: Do you know from the work that you did if these global performance indicators are really one of the determining factors in policy change, or are they part of a larger process that these countries are undertaking? 

Kelley: We have talked with folks inside the bank who are very passionate about what they do and believe that they are promoting a set of good policies. And we find that they report that they worked very closely with policymakers in these countries. What happens behind the scenes is really interesting. People within these bureaucracies that Beth just referred to established links to the agencies that are rating and ranking — in this case, the bank — and have backs-and-forth about advice, about how laws and regulations could be drafted differently so that they will move up the rankings, but also in a belief that this is a good thing.

On the ground, we won’t necessarily see a legislator going, “We’re now passing this particular thing because of the ranking.” I think it much more will be what happens behind the scenes — that is what this paper helps to uncover — but that is also what is really the powerfulness of it.

Knowledge@Wharton: Is there a possibility that the data can be molded to fit the narrative that a politician would like to achieve?

Simmons: Oh, that is very true. Sometimes these ratings and rankings are literally used to achieve policy objectives that particular government officials have in mind. That is one of the things we definitely noticed in the India case. But another thing I think is really important to stress is, what does it mean to be ranked and to be rated? To take every country from top to bottom, from the very best down to the very worst of something. That is really a lot of the theory behind why this indicator works. It’s not just that it’s the World Bank, although it’s important that it’s the World Bank. But it’s that the World Bank is using information in a very particular way.

We had a set of hypotheses about how ranking influences policymaking. One way is that when publics see the way their country has been ranked, this can be used as ammunition or as data for which to lobby, which to call for reforms. It’s like, “We can do better, we’re behind our major competitors on these important dimensions.”

In a survey we launched, we found that publics really do respond competitively to comparisons. When we told a set of respondents that their government was not performing as well as their major competitor — we were using China and India in this test — they were much more likely to say, “It’s crucial to respond to improving our ranks, and it’s crucial to improve our business climate.” Just varying that piece of information about how your competitor is doing itself can have a pretty strong effect.

There are several such rankings these days:

Knowledge@Wharton: What do you believe with this growth of global performance indicators? There are benefits, but there are also negatives. Where do you think the greatest influence lies?

Kelley: To go back to the ease of doing business index, you can find several accounts of countries that were concertedly gaming the system to try to move up in the rankings. Georgia comes to mind. To the extent to which countries can figure out how to move up in a way that is rather empty when it comes to policies on the ground, that is a negative consequence because it is just spending energy on stuff that is meaningless.

If you take something like the ease of doing business index, there are winners and losers from choosing a regulatory or deregulatory framework to implement. Many of these are ideological contestations. What is the most prominent ranking in the world? In some ways you could rank GDP, right? This is one way of measuring prosperity in the world. Then you’ve got other indicators that come out and say, “Well, it’s really about people’s well-being, it’s about happiness, or it’s about sustainable prosperity,” or whatever. There are ideological bents or philosophies to each one of these. In the case of the bank, deregulation could harm the environment, it could harm workers. So, there are winners and losers from each of these perspectives.

Eventually, everything loses its value. Humans soon realise the ways to game systems/ranking created by the humans.

Two new museums: RBI in Kolkata and Vijaya Bank in Bangalore

October 24, 2019

I had blogged about RBI opening a new museum in Kolkata.

Upala Sen reviews the museum in Telegraph

Vijaya Bank which was merged with Bank of Baroda has a museum in Bangalore. Earlier there were concerns that Directors Portraits were removed from the founder branch in Mangalore. They have been put in the museum.


History of Deposit insurance in India: The insurance coverage needs to be raised

October 23, 2019

My piece in tracing history of Deposit Insurance in India.

It’s much easier to define financial or banking instability than stability. A strong pointer of banking instability is whether deposit insurance is becoming part of the public narrative. If so, it means people are worried about safety of their deposits.

The PMC (Punjab and Maharashtra Co-operative) Bank case and a string of banking frauds have highlighted the matter like never before. The worries are taking hold as rumour mills are working overtime on WhatsApp and the social media. To be fair, the Reserve Bank (RBI) and the government have taken some steps to dispel the fears.

All said and done, people get the signals. It’s not without reasons that historians say crisis related to banking, and that too on public deposits, is one of the toughest to resolve.

This piece reviews the history of deposit insurance in India to make sense of the issues plaguing the system.

Conference on 50 years of Bank Nationalisation: 10 days left for registration..

October 22, 2019

As mentioned on this blog often, Ahmedabad University is organising a conference on “50 years of Bank Nationalisation: Indian Banking at Crossroads” on 16-17 Nov 2019.

Registration closes in 10 days (31 Oct 2019). Pass n the word to interested people.

RBI Must Reorient Its Goals And Communication (towards financial stability)

October 21, 2019

My new piece in moneycontrol. I start the piece with this observation in the recent monetary policy:

The Reserve Bank’s October 2019 policy review saw a senior journalist questioning to the Governor on the ongoing crisis in the NBFC sector and the recent failure of Punjab and Maharashtra Cooperative Bank (PMC).

To this, the Governor said, “The points which you mentioned about the banking sector or cooperative banks or NBFCs, this is not within the purview of the MPC (Monetary Policy Committee). So, the MPC does not discuss these issues.” 

The RBI chief then went on to assure the house that the banking regulator has acted swiftly to resolve the ongoing troubles and one should not pay attention to rumours.

One was startled to note that the MPC did not discuss the most troublesome issues facing Indian economy. Even the minutes of the policy review meeting showed that there was no discussion on the failure of PMC Bank.

I am sure there was discussion, but it was off the record, given that the meeting was about the monetary policy. It is also amazing how far the RBI has come when it comes to monetary policy decisions and discussions — both within and with the media.

The piece goes onto argue the need for RBI to reorganise and make financial stability an explicit goal. It needs to fix accountability of financial stability to a DG and then communicate with markets…

Cooperative Banks: From humble origins to focus of economic policy (1904-69)

October 10, 2019

I wrote a longish article on history of coop banks.

Here is the pdf: Cooperative Banks Humble Origins to Centre of Indian Economic Policy (1904-69)


Review of RBI Internal Working Group on Liquidity Management

October 10, 2019

RBI has been on fire of late releasing one report after the other. I reviewed following reports: agriculture credithousing securitization, secondary market for corporate loans and of course the Jalan Committee.

On 26 Sep 2019, RBI released another report of an Internal Working Group (IWG) to Review the Liquidity Management Framework. This post reviews the committee report.


From Madhavpura Mercantile to PMC Bank: why little has changed In cooperative banking

October 7, 2019

My New piece in Bloomberg Quint.

The piece traces the history of coop banking since Madhavpura Mercantile Coop Bank crisis in 2001 to PMC Bank today.

Decline of Kota as a manufacturing hub in Rajasthan

October 4, 2019

Interesting piece in Hindu Business Line by Tina Edwin:

Outsiders today recognise Kota as a coaching powerhouse that annually prepares thousands of students for competitive exams. But this Rajasthan town sees itself mainly as a manufacturing hub going through a downturn. As tuition classes and student hostels eat into its once thriving factory spaces, Kota desperately looks for ways to revive its industrial shops.

Fair bit of history in the piece. Did not know Kota was called Kanpur of Rajasthan! A testimony to how powerful Kanpur once was and how much it has declined…

Loan mela comeback: Missed history lessons

September 27, 2019

My new piece in Business Standard. It reviews history of loan mela.


What can India’s banking system learn from the shampoo sachet revolution?

September 24, 2019

Viral Acharya in this FT piece says Indian banks should learn from the FMCG companies who introduced sachets to sell shampoos to consumers based on their cash flows. BS has a shorter piece summarising the key idea.


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