Archive for the ‘Indian Economy/Financial Markets’ Category

What Explains the Popular Support for Demonetisation?

February 28, 2017

Despite quite a few (hopefully unbaised) economists/experts (if they matter today) saying that demonetisation is a bad policy, the public support for the same has been amazing. After all politicians unlike experts have a scorecard in form of elections and initial results suggest no damage to the ruling party.

Prof Rita Khera of IIT Delhi tries to unravel this puzzle:


A paper tiger called Banks Board Bureau..

February 27, 2017

This is a scathing piece by Tamal Bandopadhyay on Banks Board Bureau (BBB). For someone who has been reading banking history, it is not surprising to see government first creating hype by creating bodies like BBB which will “clean Indian banking forever” to be reduced to another of the several bodies. One problem in recent years how much hype media creates over anything connected to banking without either seeing basics or waiting for sometime to get details.

Over to Tamal for busting another such hype over BBB:


Demonetize huge amount onetime vs Demonetise smaller amounts frequently..

February 27, 2017

JP Koning’s blog keeps coming out with posts related to India’s demonetisation. Most people say demonetisation is over and not worth the time now. Well for  scholarship on monetary economics, India’s demonetisation deserves to be as widely researched a subject as any for many years. It just has so many facets to it.

In his recent post, Koning says instead of massive demonetisation drive onetime one could have smaller drives periodically. Interestingly in Philipines, Central Bank keeps withdrawing currency fairly regularly as well. Its central bank act says:

SECTION 56. Replacement of Currency Unfit for Circulation. — The Bangko Sentral shall withdraw from circulation and shall demonetize all notes and coins which for any reason whatsoever are unfit for circulation and shall replace them by adequate notes and coins: Provided, however, That the Bangko Sentral shall not replace notes and coins the identification of which is impossible, coins which show signs of filing, clipping or perforation, and notes which have lost more than two-fifths (2/5) of their surface or all of the signatures inscribed thereon. Notes and coins in such mutilated conditions shall be withdrawn from circulation and demonetized without compensation to the bearer.

SECTION 57. Retirement of Old Notes and Coins. — The Bangko Sentral may call in for replacement notes of any series or denomination which are more than five (5) years old and coins which are more than (10) years old.

Notes and coins called in for replacement in accordance with this provision shall remain legal tender for a period of one (1) year from the date of call. After this period, they shall cease to be legal tender but during the following year, or for such longer period as the Monetary Board may determine, they may be exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the Bangko Sentral for this purpose. After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of the Bangko Sentral and shall be demonetized. The Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced.

But this is more about retiring old notes to keep counterfeiting etc at bay.

Koning says one way to achieve this regularly is by declaring notes having a particular serial number as losing legal tender status:

This continues a series of posts (1, 2, 3) I’ve been writing that tries to improve on Indian PM Narendra Modi’s clumsy demonetization, or what I prefer to call a policy of surprise note swaps.

The main goal of Modi’s demonetization (i.e. note swapping) is to attack holdings of so-called “black money,” or unaccounted cash. The problem here is that to have a genuine long-run effect on the behavior of illicit cash users, a policy of demonetization needs to be more than a one-off game. It needs to be a repeatable one. A credible threat of a repeat swap a few months down the road ensures that stocks of licit money don’t get rebuilt after the most recent swap. If that threat isn’t credible, then people will simply go back to old patterns of cash usage.


Weeding out rupee banknotes according to serial number rather than denomination would have allowed for a more refined policy along the lines advocated by Henry. Here’s how it would work. The government begins by declaring that all ₹1000 notes ending with the number 9 are henceforth illegal. Each person is granted a degree of protection from the note ban. Anyone owning an offending note can bring it to a bank to be swapped for a legitimate ₹1000 note (one that doesn’t end in 9). However, the government sets a limit on the number of demonetized notes that can be exchanged directly for legitimate notes, say no more than three. Anything above that can only be exchanged in person at a bank teller for deposits, which requires that they have an account (i.e. their anonymity will be lifted). Once an individual has deposited five notes in their account, all subsequent deposits of demonetized notes would require a good explanation for the notes’ provenance. Should the requisite paper trail be missing, the depositor gives up the entire amount.

The process begins anew a few months hence, the specific timing and banknote target being randomly chosen. So maybe thirteen months after the first swap, the government demonetizes all ₹500 notes ending in 6. Randomness prevents people from anticipating the move and hiding their illicit wealth in a different high denomination note. 

Too understand how this affects black money owners, consider someone who owns a large quantity of illicit ₹1000 banknotes, say ₹70 million (US$1 million, or 70,000 banknotes). This person faces the threat of losing 10% to the note swap. After all, when the 9s are called, odds are that he or she will have around 7,000 of them, of which only eight can be returned without requiring a paper trail. The owner can simply accept a continuing string of 10% losses each year as a cost of doing business.

Alternatively, they might protect themselves by converting their hoard into a competing store of value, say gold, bitcoin or low denomination rupee notes like ₹100s (which are not subject to the policy of ongoing swaps). If they flee high denomination notes, illicit cash users in a worse position than before the adoption of the policy of note swapping. Gold and small denomination notes have far higher storage and handling costs than ₹1000 banknote. And unlike gold and bitcoin, a banknote is both supremely liquid and stable.  

As for licit users of high denomination notes, the fact that the 10% clawback would not apply to them means they needn’t change their behavior. Nor would the poor, who are unlikely to be able to provide a paper trail, have to worry about the policy. Demonetizations would only occur in high denominations, in India’s case ₹500 and 1000s. The poor are less likely to own these in quantities above the three note limit.

Incidentally, readers may recognize a policy of repeat demonetizations as akin to a Gesell stamp tax, named after Silvio Gesell, who in 1916 proposed the idea of taxing currency holdings in order to increase the velocity of circulation. Greg Mankiw famously updated Gesell’s idea during the 2008 credit crisis to remove the zero lower bound. He did so by using serial numbers as the device for imposing a negative return rather than stamps. This post updates Mankiw’s idea, except rather than applying the tax to all cash it strikes only at illicit cash holdings, and does so in the name of an entirely different policy goal—attacking the underground economy, not removal of the zero lower bound.

A series of small serial number-based swaps seems like a better policy than Modi’s ham-handed demonetization of all ₹1000 and ₹500s. It would certainly do a better job of promoting a long-term decline in undocumented cash holdings and would do so by imposing a much smaller blast radius on the Indian public. There would be no currency shortages, huge lineups at banks, empty ATMs, or trades going unconsummated due to lack of paper money.

Not sure about this at all. Such measures always read like nice experiments but one has to see the overall context. India has massive amount of illiteracy and keeping people off guard regularly will create regular havocs. It is also important to note that Rs 500 and Rs 1000 notes are hardly high value given how inflation has eroded purchasing power over the years. Rs 500 atleast is used fairly common amidst even lower income people. So, it is not right to assume that poor will not be effected by repeated smaller demonetisation. Whether one time or regular, they are the ones who shall be hit given current denominations. Only if denominations are higher, can we even think of this measure.

Another problem shall be speculation against which number shall be demonetised next. Given how things work, markets are fairly good at guessing all this and we could see people refusing to accept notes even before the new demonetisation order. We have seen how Re 10 coin is not accepted despite being legal tender.

Any measures to manipulate currency usually backfire. People are way too smart than Governments think..

A digital archive for Rashtrapati Bhavan….

February 27, 2017

Superb initiative underway  as reported by The Hindu. The Archive will be housed at – – which is quite a knowledge seeking place already.

The architectural history and the heritage of Rashtrapati Bhavan, the 340-room official residence of the President of India, has been documented in a series of books, which will soon be available in an online series.

Concise web-based modules are set to bring to life the architectural and cultural grandeur of the iconic building, designed and constructed by legendary British architect Edwin Lutyens.

A multi-volume documentation project of the Rashtrapati Bhavan was commissioned three years ago by the President’s Secretariat in collaboration with the Indira Gandhi National Centre for the Arts (IGNCA).

Sahapedia, an open online resource on the arts, cultures and heritage of India, which began the project in 2014, compiled 11 volumes of well-researched books written by top experts in various fields.

“Along with the books, we have produced a series of web modules and will be shortly uploading all of them on our website. These will be valuable for both researchers and laypersons to gain a better understanding of the history and heritage of the building,” Yashaswini Chandra, Project Manager, Sahapedia said.

Having archives is such a crucial aspect of building and updating history of any institution. Very nice to see these volumes being stored digitially for a wider access..



Looking Back at 100 years of research in Indian economics (by Indian economists)..

February 27, 2017

India may have made progress economically, but it has clearly declined in economic research and thinking. We hardly have original economic ideas with most thinking coming from elsewhere. There was a time when there was original economic research published in Indian economic journals and by Indian university economists. Now all these three are missing. Few people who continue to be passionate about so called Indian economic thought are hardly given their due.

J Krishnamurthy pays a tribute to Indian Journal of Economics which completed its 100 years in 2016. It is a pity that most students would have hardly heard about this journal.


25 years of economics reforms but banking woes come a full cirlce: Making India less dependent on banks..

February 24, 2017

Prof JR Varma has a piece saying 25 years of economic reforms has led to remarkable turnaround in equity markets. But banking sector remains the same with woes coming a full circle.

He says we should take measures to make Indian economy less reliant on banks. In an interesting comparison, he compares banks to a CDO:


Brahmin adopted by SCs can get quota job..

February 24, 2017

India’s battle for backwardness gets murkier.

In a new case, Punjab and Haryana High Court said:

Can a person avail the benefits of reservation under Scheduled Caste (SC) if he was born a Brahmin but was adopted and brought up by SC parents? In an order that will have wide-ranging ramifications, the Punjab and Haryana high court has held that such a person cannot be denied a government job under the reserved category.

The court has also clarified that the adoption would be considered valid even if the regular format has not been followed and customary law has been employed.

The battle for backwardness in India…

February 23, 2017

Prof Rohini Somanathan has a piece in Ideas4India:

We must also realise that no set of concessions granted by the central and state governments can lead us out of the current conflicts over reservations. This is because placing two castes in the same category does not give them equal status, but rather shifts scarce goods across them. No matter where a caste is placed in the scheme of things, there is always a better place to be. This is best illustrated by the Gujjar demands for reservations in Rajasthan in 2006. The Gujjars were already part of the OBCs but wished to be re-classified as an ST. The reasons were obvious. There were many literate OBCs who were competing with them for jobs and university seats but relatively few of the tribes had enough education to be rivals. The probability of entering elite institutions was therefore much higher as an ST. The Meenas of Rajasthan were the most influential within the STs and the new Gujjar demands led to violent clashes between these two groups. The Gujjars then pushed for compartmentalising the OBC quota to guarantee them a 5% share of reservations, but the Jats, who were OBCs in Rajasthan found this unacceptable. Finally, the category of Special Backward Classes was created, consisting of the Gujjars and four other groups and they were given a 5% quota. This, however, took the fraction of total reserved seats to above one-half and the courts stepped in to strike down the notification. Last September, in a similar move, the Nishads of Bihar petitioned to move from the OBCs to the SCs.
With hundreds of castes already labelled as backward, the most educated within them gain from reservations. This has widened inequalities within scheduled groups. In Bihar, for example, Dhobis and Musahars are both SCs, but 14% of Dhobis complete 10 years of schooling, while only 1% of Musahars do so. It is inconceivable that they will converge in social standing if SC quotas are our only means to equalise opportunities. In 2007, the Nitish Kumar government created a new group, Mahadalits, to help communities like the Musahars, but it was only a matter of time before the Dhobis and Chamars also wanted in.
Caste reservations first emerged to promote equal treatment in a society where untouchability was widely practised. They have now degenerated into a scramble for privilege and a catalyst for communal conflict. Many state elections are being held in 2017, including Punjab, Gujarat and Uttar Pradesh. Punjab has already announced OBC status for the Rajput Sikhs. It remains to be seen whether politics in the other states will also be dominated by lobbies for reservations or whether our leaders can focus on expanding the social and physical infrastructure that we so badly need. Only 15% of children in rural India have easy access to a high school, only 4% of villages have a primary health centre, and income transfers to the poor and the old are negligible for most families. The Indian State now has the capacity and the data needed for modern methods of redistribution – through public goods, social insurance, and progressive taxes. It is time to use these to move forward.
India’s political economy of development remains as interesting as ever..

The 10 rupee coin chaos in Karnataka and the fake Rs 2000 note from Children Bank of India..

February 22, 2017

The RBI chef recently said it is important to be thick skinned in such jobs. He also added that “everyone has agreed that not just the RBI, but the wider banking system has done a “Herculean job” over the last few months. Well it is fine to be thick skinned and congratulate oneself, but it is also important to respond to what is going on. However, thick skinned does not mean one becomes insensitive and stops responding completely.

Ever since the central bank agreed to unleash the demonetisation, the Re 10 coin has been one of the unintended victims. There are repeated rumors that this Rs 10 coin is not legal tender. It even got a rare response from the Central Bank on Nov 20 2016 that there is no such case and Re 10 remains legal. But no repeated assurances after that.

So once again the rumors built in Karnataka and no one is accepting the 10 rupee coin. The media reported this on 10 Feb but there is no official notice from the central bank. So people are not accepting the Rs 10 coin in Bangalore (not sure about other regions in the state) and it has been nearly 10 days:


Evolution of currency denominations in India – From Rupee 1 to Rupees 10000

February 21, 2017

I came across this wonderful book – The Indian Financial System (1985) by RK Sheshadri, former Deputy Gvernor of RBI (1973-76). It is perhaps one of the most useful books to understand how Indian monetary and fiscal system has evolved over a period. It has amazing amount of information and facts which helps one know many aspects of Indian macroeconomic system and not just financial system.

From the book and other data available with RBI, I tried to draw a timeline of the various currency denominations in India. I have also updated it as his analysis ends in 1985.

This is how the timeline looks:

  • 1861       Paper Currency Act allowed denominations of Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 1000.
  • 1871       Allowed Rs 5 and Rs 10,000 which were issued in 1872.
  • 1910       Rs 20 discontinued as not much in demand. Reintroduced in 1972.
  • 1917       Re 1 introduced due to shortage of silver; discontinued in 1926.
  • 1918       Rs 2.5 issued for the same reason; discontinued in 1926.
  • 1935       Issue of Rs 50 discontinued due to lack of demand, reintroduced on 17-May- 1975.
  • 1940       Re 1 reintroduced.
  • 1943       Rs 2 introduced.
  • 1946       Demonetisation of Rs 500 and upwards.
  • 1954       Reintroduction of Rs 1000 and 10000 along with a new Rs 5000 denomination.
  • 1978       Demonetisation of Rs 1000 and upwards.
  • 1987       Reintroduction of Rs 500.
  • 2000       Reintroduction of Rs 1000.
  • 2016       Demonetisation of old series of Rs 500 and Rs 1000. Reintroduction of new Rs 500 and a new denomination Rs 2000.

Interesting to note that we had Rs 2.5 albeit for a short time as well.

Of all the denominations, Re 1 is the most interesting. It was first planned to introduce the note in 1893 but did not happen. It was finally issued in 1917 due to shortge of silver. As silver prices declined in 1920, these notes withdrawn in 1926. The notes were again printed in 1933 (in England) as silver prices rose dur to Silver Purchase Act 1934. However, the crisis receded and notes were not issued.

Though they were issued on 1940 due to again – shortage of silver. The issuance was done under the Currency Ordinance (1940). AS the ordinance was made during World War II, India and Burma Emergency Provisions Act 1940 amended the the 9th schedule of Government of India Act (1935). This allowed continuance of all the ordinances issued during World War II. Thus, it continues to provide the authority to Government to issue Re 1 note.

So much so, the Government stopped printing Re 1 notes a while ago, the ordinance remained much to surprise for lawmakers:

Remember the Re1 note, or the last time you saw it?

It may well have gone out of print, but an ordinance promulgated to facilitate its birth in 1940 is still in force, despite the fact that the Constitution grants no more than six months of life to an ordinance.

Notably, the currency ordinance issued by the colonial British government to print the Re1 note is going to survive, as it did two bids earlier when a finance ministry panel in 1997 and then the law commission in 1998 recommended its repeal on the ground that the note is no longer printed.

The parliamentary standing committee on finance stumbled upon the currency ordinance, 1940, recently while examining the coinage bill, 2009, aimed at replacing four existing laws on metal coins and tokens.

Flummoxed by its queer longevity, the committee headed by former finance minister Yashwant Sinha asked the ministry if the ordinance promulgated in 1940 was ever enacted as a law.

“No. The currency ordinance, 1940, was promulgated after passing of the India and Burma (Emergency provisions) Act, 1940, which provided that ordinances made during the period of the Emergency beginning June 27, 1940, (imposed to meet the exigencies of World War II) would not lapse within six months,” the ministry told the lawmakers’ panel.

“This made the currency ordinance, 1940 of permanent nature,” it said, adding that after Independence, the Indian government adopted it thorough a presidential order in 1950 to adopt various British laws.

An ordinance is a special piece of legislation made by the executive to meet an emergency when Parliament is not in session. But Article 123 of the Constitution stipulates that the ordinance will lapse unless it is ratified and made into a full-fledged law by Parliament within six months of its promulgation.

Asked by the panel as to why the ministry was not repealing it when it has stopped printing Re1 note, the ministry replied: “The 1940 ordinance may not be repealed as yet as one rupee notes continue to be in circulation though not being printed any more.”

The coinage bill, 2009, seeks to amalgamate four laws — Metal Tokens Act, 1889, Coinage Act, 1906, Bronze Coin (Legal Tender) Act, 1918, and the Small Coins (Offences) Act, 1971, into one comprehensive act.

So Coinage Act 2011 Section 28 says:

28. Continuance of existing coins

Notwithstanding the repeal of the enactments and the Ordinance specified in sub-section (1) of section 27,–

(a) all coins issued under the said enactments; and

(b) Government of India one rupee note issued under the Currency Ordinance, 1940 (Ord. IV of 1940), which are legal tender immediately before the commencement of the Coinage Act, 2011 shall be deemed to be the coin and continue to be legal tender in payment or on account under the corresponding provisions of this Act.

All this is so so fascinating.

History, law, currency, wars…there is a bit of everything in this. It is a pity we have not paid any attention to currency denominations in studying monetary economics. With the war on cash, much of this will be lost as well.

The price India paid as a part of British empire…

February 21, 2017

Dr Shashi Tharoor who hit headlines with his speech pointing to evils of British empire has another piece.

He says Indians have not held a grudge against the empire which is a puzzle.

Given India’s longstanding attitudes about colonialism, I did not expect such a reception. But perhaps I should have. After all, the British seized one of the richest countries in the world – accounting for 27% of global GDP in 1700 – and, over 200 years of colonial rule, reduced it to one of the world’s poorest.

Britain destroyed India through looting, expropriation, and outright theft – all conducted in a spirit of deep racism and amoral cynicism. The British justified their actions, carried out by brute force, with staggering hypocrisy and cant.

The American historian Will Durant called Britain’s colonial subjugation of India “the greatest crime in all history.” Whether or not one agrees, one thing is clear: imperialism was not, as some disingenuous British apologists have claimed, an altruistic enterprise.

Britain has been suffering from a kind of historical amnesia about colonialism. As Moni Mohsin, a Pakistani writer, recently pointed out, British colonialism is conspicuously absent from the United Kingdom’s school curricula. Mohsin’s own two children, despite attending the best schools in London, never had a single lesson on colonial history.

Londoners marvel at their magnificent city, knowing little of the rapacity and plunder that paid for it. Many British are genuinely unaware of the atrocities their ancestors committed, and some live in the blissful illusion that the British Empire was some sort of civilizing mission to uplift the ignorant natives.

This opens the way for the manipulation of historical narratives. Television soap operas, with their gauzy romanticization of the “Raj,” provide a rose-tinted picture of the colonial era. Several British historians have written hugely successful books extolling the supposed virtues of empire.

In the last decade or two, in particular, popular histories of the British Empire, written by the likes of Niall Ferguson and Lawrence James, have described it in glowing terms. Such accounts fail to acknowledge the atrocities, exploitation, plunder, and racism that underpinned the imperial enterprise.

All of this explains – but does not excuse – Britons’ ignorance. The present cannot be understood in terms of simple historical analogies, but the lessons of history must not be ignored. If you don’t know where you’ve come from, how will you appreciate where you’re going?

This goes not just for the British, but also for my fellow Indians, who have shown an extraordinary capacity to forgive and forget. But, while we should forgive, we should not forget. In that sense, the powerful response to my 2015 speech at the Oxford Union is encouraging.

Well, am not sure about this. May be in elite circles things have been forgotten as nothing much changed for them. However, for an average Indian this bit of colonialism is pretty deep rooted and anger filled. The British schools may not be teaching about colonialism but most of us learn about it mostly from a negative angle. The huge response to Dr Tharoor’s speech proves this deep rooted anguish against colonialism.  Though, there is little doubt  that Raj has been painted pleasantly quite often than needed.

But then laws of karma are catching up?

The modern relationship between Britain and India – two sovereign and equal countries – is clearly very different from the colonial relationship of the past. When my book hit bookstores in Delhi, British Prime Minister Theresa May was just days away from a visit to seek Indian investment. As I’ve often argued, you don’t need to seek revenge upon history. History is its own revenge.

Is India’s tax base low?

February 21, 2017

Praveen Chakravarty of IDFC Institute adds to the debate with interesting data to ponder about.

His basic point is the threshold for exempting income tax is much higher than other countries. The ratio of per capita GDP to income tax exemption threshold is five times higher than world average.

Why is it then a big surprise that a mere 3 percent of Indians file income tax returns?

On the ratio of per capita GDP to income tax exemption threshold, India is a complete outlier in the world. The average ratio across 20 developed and developing countries is 0.5, i.e. the income tax exemption threshold in a country is only half its per capita GDP. For example, the average person in China earns 50,000 yuan but anyone earning more than 18,000 yuan will fall under the tax bracket. Similarly, the ratio of income tax exemption threshold to per capita GDP in Brazil is 0.8. It is 0.2 in the United States and 0.9 in Mexico. India’s ratio is 5 times greater than the world average. As the chart below shows, only Bangladesh has a greater ratio than India.

So, when the Economic Survey suggests that India has among the fewest taxpayers per 100 voters, it is equally important to consider this fact that India has one of the highest exemption thresholds for paying income tax.

So it is not fully fair to say India does not pay taxes. Lower the exemption limit and you have more people part of the tax fold.

In the Union Budget of 2017-18 presented by the Finance Minister recently, the income tax rate for the first income tax slab was lowered from 10 percent to 5 percent. So, India not only has a high income tax exemption threshold but also a very low rate for the first income tax slab.
Again, India stands out in this aspect compared to the rest of the countries in the world. The chart below plots the ratio of income tax exemption threshold to per capita GDP on the X axis and the rate of income tax for the first slab on the Y axis. As evident in the chart, India is a complete outlier yet again, even more of an outlier than Bangladesh, whose income tax rate for the first slab is higher.

Data source: Praveen Chakravarty
Data source: Praveen Chakravarty

In the last two decades, the income tax exemption threshold has increased six-fold from Rs 40,000 to Rs 2.5 lakh. In contrast, the average annual nominal incomes of Indians have multiplied only three-fold in this period.

It is thus premature to conclude automatically that India’s inordinately low tax base is entirely a function of massive tax evasion by Indians. While lowering the income tax rates, had the Finance Minister also lowered the income tax exemption threshold to say Rs 1.5 lakh, 1.1 crore more Indians would have automatically qualified to pay income tax. This would have brought India more in-line with the rest of the world in terms of exemption threshold to per capita GDP ratio.


One needs to dice and slice data to get more ideas..

Actually for a very long time we have been obsessed with taxes and who is paying them. We have not looked at expenditure side at all barring when it comes to subsidies. How efficient has Indian Government’s spending been all these years? One would hypothesise that the record has been a really poor one so far (would like to be proved wrong here).

The Indian government over the years has also nicely spinned the story saying more taxes will enable State to deliver more and help India develop. Well the intention is welcome, but the history of development via taxes more so income tax needs to be understood from a historical perspective.


Where should Tata Sons chief look for advice? In Tata’s Archives..

February 20, 2017

It is not always one sees an article asking a new CEO to look into his own company’s archives!

So thank you Priyanka Sangani of ET for suggesting (HT: HITCH) the new head of Tata Sons to look into Group’s archives for advice:


Centre’s Bhim vs Telangana’s Digital Wallet – A case of States’ entering currency policy?

February 17, 2017

No rewards for guessing who would win the battle between the two.  It is of course going to be Centre’s Bhim which will take over the TS wallet:

The Centre’s BHIM App and Aadhaar-based payments system have blocked the launch of the state’s own, TS-Wallet.

Chief Minister K. Chandrasekhar Rao had announced the launch of the of TS-Wallet — a mobile application for cashless transactions — in December last year. But bankers and service providers are said to be not particularly keen on partnering with individual state governments, after the Centre itself came out with the BHIM app and is now set to launch an Aadhaar-based payments system.

Bankers and service providers are also concerned about the security features of TS-Wallet, which was developed by the state’s IT department. The department had developed the app in December and had referred it to the government for final approval. There has been no progress after that.

The state government had even approached banks and service providers to form crucial partnerships while implementing the TS-Wallet system. But it was at this juncture, the Centre itself rolled out the BHIM App — which is the same at the state’s own digital payment solution.

“Bankers felt the TS-Wallet would be just a duplication of the BHIM App. Under TS-Wallet, we wanted waiver of all taxes and transaction charges. And banks had asked the government to bear some losses due to the waivers. We could not come out with a proposal on how much burden the government would bear due to which there was no progress on the TS-Wallet plan, official sources from the finance department revealed.

Though what is more interesting is all these digital payments are allowing Indian States to venture into the currency function, which was always the Centre’s function. As per Constitution, “Currency, coinage and legal tender; foreign exchange” is under the Union List (number 36 in the list).

But given how digital world is, it does not prevent State governments to offer their own digital wallets with some state related benefits/incentives  thrown in the scheme.  Unless there is a Constitutional amendment saying even digital currencies/payments will be a centre subject.

As the Centre tries to show its powers by rushing in the digital world, there are contrarian forces undermining (or atleast questioning) the very powers.

All this is so fascinating and ironical. It is taking us back to times when Princely State of Hyderabad issued its own currency. Whoever said this digital world is only about modernity is refusing to see how history is coming back…


Formation of twenty one new districts in the State of Telangana – Assignment of Lead Bank Responsibility

February 17, 2017

Though formation of 21 districts in Telangana State is a widely political event, it has implications for Indian banking system.

The Lead Bank scheme has to be reorganised. RBI releases the list which also tells you how the new districts have been carved from existing ones.

Nice bit of information..

Vijaywada: A city that remembers and honours its bureaucrats…

February 16, 2017

This is an interesting pointer from Anantha Nageshwaran.

Vijaywada in Andhra Pradesh is a unique place which names its landmarks in bureaucrats which tried to develop the city:


Creating emerging markets: Lessons from (India’s Business) History…

February 15, 2017

Interesting Conference hosted by Harvard Business School recently. The Conference invited hosts of experts on business history. There are videos of senior leaders and some resources as well..


Three months after demonetisation, Adivasis in Maharashtra are still getting IOUs instead of cash

February 9, 2017

Both the Government and the central bank continue to be at their arrogant best by saying cash troubles are all but over. It is the Marie Antoinette moment all over again.

Dejure they may have done away with most restrictions but defacto most restrictions remain. Yesterday there was news that ATMs are again running dry which needs to be investigated for its veracity.

In all this the basic idea of velocity of money has but been forgotten. Demonetisation was not just about taking currency away but hitting the velocity of currency circulation severely. Likewise, remonetisation is not just about replenishment of stock of cash but improve the flow of currency as well. The Rs 2000 note which has partly replenished the stock has failed miserably to resurrect the flow as it was expected.

So we will keep hearing such stories for a while especially from hinterlands. In these places, even stock has not been replenished:

On Sunday, days before the third month after demonetisation drew to a close, a group of men and women gathered under a mahua tree in Khadkipada to discuss what had changed for them since the demonetisation announcement.

The village, home to the indigenous Warli community, is located at the foot of a hilly outcrop around 20 km from Dahanu town on Maharashtra’s western coast. The land here is dry, allowing for cultivation only once during the monsoon. The men tend to their fields during the rains and travel for work for the rest of the year, be it to the Gujarat Industrial Development Corporation as Nimbhal used to, to the brick kilns spread out across Palghar, to fisheries along the coast, or cutting and selling dried grass for press machines.

Nimbhal is not the only one who has had to make do with a limited flow of cash since demonetisation. Cash supply at banks in the area continues to be stilted a month after the deadline to deposit old notes ended. Even when employers pay workers by cheque, there are delays in withdrawing that money, which results in loss of working days. Add to these problems the fact that many in the village, like Nimbhal, do not have bank accounts.

Sunita Narle, a resident, had a few of the old notes she had saved over the years. The news of demonetisation took a little more than a week to reach the village through the men who work outside. When she realised a part of her savings were no longer legal tender, she was at a loss for how to exchange it.

“Since I don’t have a bank account, I gave it to others to deposit,” Narle said. “I have not got the money back yet because there is no money in the banks and my friends have not been able to withdraw it.”

Sakharam Umbersada, another resident of the village who had gathered at the meeting, spoke of problems villagers still faced at the nearby bank branch. “It takes people two or three weeks just to get their money out of the bank,” Umbersada said. “We go to the banks and stand in line, but our number is not called. When big people come, they get money immediately, but not us.”

Instead of shunning all claims that demonetisation woes are all but over, the Government should be more sensitive to what is going around. It should encourage rigorous reporting of facts from all possible areas and share with citizens.  But we have a case where even the central bank refuses to give any details after nearly 40 days of the exercise being over.

It is this arrogance and hubris which eventually is behind all falls from perceived heights…

RBI courts unnecessary controversy by not inviting The Economist for its post monetary policy press conference…

February 8, 2017

There was big furore last time when Stanley Pignal of The Economist was not allowed to attend press conference post monetary policy decision in Dec-2016.

This time again Mr. Pignal tells us that invites have been sent to journos for today’s meeting but TheEconomist is not invited:

Invites to next RBI press conference have gone out. Sad to say again not invited. Journalists trying to figure out who is.

He also says some other journalist who has been critical of the demonetisation policy has not been invited without naming the person.

This is just needless really. One does not know why these invites are sent. All journos should be allowed if they fit basic guidelines and manners. The central bank should not really disallow a journalist who is critical of monetary policy. It should actually welcome criticism and look to answer questions from critics first.  There is no point in having journalists who are merely going to nod heads and ask meek/usual questions.


We are increasingly told by the government and its esteemed advisers that demonetisation is such a great idea and so on. After all the Central Bank and its Board agreed and advised the government on the idea. Now we are told discussions were on since Februray 2016 on the move.

In such a case, why get into needless controversy. Just let critics come and look to answer their questions.

One does not know what is going on really. New lows for Indian central bank..

Digital payment in India down by 10% as cash comes back to the system..

February 8, 2017

This bit of analysis by Anup Roy of Business Standard is interesting.

He shows how the digital payment data which had jumped significantly post demonetisation is beginning to decline. Some people are going back to their choice of usage of cash over digital payments: