Archive for the ‘Indian Economy/Financial Markets’ Category

Chit funds to be called as Fraternity funds..

February 20, 2018

The Cabinet recently approved a new bill to ban Unregulated Deposit Schemes and amend Chit Funds Act 1982. The Chit Funds Act is here.

So what does the amendment propose?



Prof. Mahalanobis and Soviet influence

February 20, 2018

David C Engerman of Brandeis University writes in EPW:

Prasanta Chandra Mahalanobis has long been accused of maintaining close ties with the Soviet Union. However, his communist links are mostly asserted without documentary evidence. Using new archival material, especially from the archives of Soviet institutions, this article discusses Mahalanobis’s desire for Indo–Soviet ties, especially in the economic realm, as well as the Soviet response to such alliances. 

 What is interesting to note is how Soviets tried to distance themselves from the Mahalonobis plans:

Western, and especially American, observers nervously watched these growing connections which bolstered their view of Mahalanobis as the eminence grise—perhaps the eminence rouge—of Indian economic policy. Starting in the early 1950s, United States (US) State Department records amassed an impressive catalogue of Mahalanobis’s supposed political trespasses: he was “extremely sympathetic to Communist Doctrine,” “far along the road to Communist theory,” “emotionally and intellectually very close to Moscow,” and hewed close to the Soviet line on matters both economic and political.17

Yet, for all the opponents Mahalanobis managed to attract, and for the criticism that he faced at home and in Washington, Soviet officials remained wary. Even as the Soviet Academy of Sciences agreed to send a delegation to consult with the ISI for formulating the Second Five Year Plan in 1955, Soviet bureaucrats issued clear warnings. “The task of Soviet economists,” Central Committee apparatchiks demanded, “should be limited to consultations, [and to] communicating our experience. We should not take responsibility for the formulation of a perspective ‘plan’ or become official advisors and experts working out this ‘plan.’” This order suggests a real determination to distance visiting Soviet economists from Mahalanobis’s activities in shaping the Second Plan.18 They likewise expressed their doubts about working with Mahalanobis; for all of his Soviet enthusiasms, one Soviet report noted, Mahalanobis exhibited “bourgeois limitations” in his “approach to socio-economic problems.”19

By the 1960s, as the Soviet economy slowed down and the excitement of India’s Second Five-Year Plan (1956–61) gave way to a troubled Third Plan (1961–66), Soviet observers evinced even more concerns about Indian planning, highlighting the differences between the Soviet version and what was happening in India. Purists in the Academy of Sciences denounced Indian planning as a crutch keeping Indian capitalism alive; others distanced themselves from the Indian Planning Commission by employing phrases like “so-called planning” (Clarkson 1978: 72–74; Lozovaia 1966: 104). Soviet observers, in sum, recognised that Mahalanobis’s aspirations (and his claims of Soviet inspiration) did not in and of themselves create central planning along Soviet lines; later on, it would come to be termed as the “administrative-command economy.”

Thus, even as Mahalanobis sought closer economic ties with the Soviet Union, his entreaties fell upon sceptical ears. While Soviet officials hoped to use Mahalanobis to expand their influence in Indian intellectual life, and expressed guarded hopes for Indian economic policy, they steered clear of any deeper connection with Mahalanobis. Their reasoning may have had as much to do with Mahalalanobis’s personality as his economic ideas or his politics; one official at the Soviet Academy of Sciences praised The Professor’s intellect but cast doubt on his motives: “Mahalanobis gave the impression of a very intelligent and cunning (khitrogo) person, his external frankness and good nature hiding his true intentions.”20

Energetic and ambitious, Mahalanobis sought Soviet support of all kinds to promote his vision of rapid industrialisation and central planning, willing to provoke fierce denunciations along the way. His fervent efforts, however, prompted a cautious Soviet response, both in the policy realm and in their dealings with him at a personal level. Ultimately, then, the more Mahalanobis invoked the Soviet Union (and provoked his critics), the less likely he was to win lasting Soviet support.


The History: This Is not The Punjab National Bank of pre-partition India

February 20, 2018

I so wish had written this piece. The founder of both the banks, Bank of Baroda and Punjab National Bank must be feeling miserable in their heavenly abodes.

This piece in Outlook goes to history of PNB (PNB’s website has some bit as well) and how it came from Pakistan to India (see this more general piece).  How the bank was a pride of Punjabis for much of its initial history:


India’s elite institutions are facing a credibility crisis

February 20, 2018

Milan Vaishnav has a worrying piece:


European Central Bank members have a fixed, non-renewable contract..

February 20, 2018

European Council nominated Luis de Guindos (of Spain) as the vice-chairman of ECB.

The press release said:

The Eurogroup today gave its support to the candidacy of Luis de Guindos for the position of Vice President of the European Central Bank (ECB).

The recommendation to the European Council, composed of the heads of state and government, should be formally adopted by the Council on 20 February. On this basis, the European Council will request opinions from both the European Parliament and the Governing Council of the ECB. It is then expected to adopt its final decision at its meeting of 22-23 March.

The new Vice President will replace Vítor Constâncio as of 1 June 2018. He will serve a non-renewable 8-year term.

Interesting to note that there is a fixed non-renewable term. Not sure how many central banks have this arrangement. This ensures there are no political favors are sought to get reappointed. But still the problems of them joining the private sector, post their retirement remains.

ECB Act says all members to get similar term:

The Executive Board comprises the President, the Vice-President and four other members. They are appointed by the European Council by qualified majority on a recommendation from the Council after it has consulted the European Parliament and the Governing Council. The members’ term of office is eight years and is not renewable (Article 283(2) TFEU and Articles 11.1 and 11.2 of the ECB Statute). 

RBI’s Act on the other hand allows renewal of contract across positions:

8. Composition of the Central Board, and term of office of Directors.
(4) The Governor and a Deputy Governor shall hold office for such term not exceeding five years as the 5[Central Government] may fix when appointing them, and shall be eligible for re-appointment.

[A Director nominated under clause (c) of sub-section (1) shall  hold office for a period of four years and [shall be eligible for reappointment:

Provided that any such Director shall not be appointed for more than two terms, that is, for a maximum period of eight years either continuously or intermittently.]

7) A retiring Director shall be eligible for re-nomination.]

[9. Local Boards, their constitution and functions.
[(3) Every member of a Local Board shall hold office for a term of four years and thereafter until his successor shall have been appointed and shall be eligible for re-appointment.]

Provided that any such Director shall not be appointed for more than two terms, that is, for a maximum period of eight years either continuously or intermittently.

(1) Not less than two auditors shall be appointed, and their remuneration fixed, by the Central Government.
(2) The auditors shall hold office for such term not exceeding one year as the Central Government may fix while appointing them, and shall be eligible for re-ppointment.

Only in case of MPC members the contract is non-renewable:

45ZD. Terms and conditions of appointment of Members of Monetary Policy Committee.
(1) The Members of the Monetary Policy Committee appointed under clause (d) of subsection
(2) of section 45ZB shall hold office for a period of four years and shall not be eligible for re-appointment.

Need to figure the terms of appointments for other central banks too…

How The 11,400 cr. Import Ponzi Scam at PNB Unfolded

February 16, 2018

Deepak Shenoy of Capital Mind simplifies what otherwise reads like a fairly complicated crisis.

To me this is the main thing:

  • The main culprits here are the top management of the bank and the auditors. How they could NOT have caught this is simply beyond rational imagination – and therefore points to people knowing it but letting it continue.


Banks continue to refuse acceptance of small denomination coins

February 16, 2018

Experts disagree on impact of demonetisation citing all kinds of growth figures to suggest there was no or limited impact.

This is obviously their “eat cheese moment”. They fail to understand how the decision has shaken the belief in what is the crux of economy: payment system. There is continuous news of people not having faith in Rs 10 coin. There is a wide belief amidst people that Rs 2000 note could be denotified anytime. Thus, people want to shake off Rs 2o00 note right away.

Infact banks have been refusing to accept small denomination coins. RBI issued a warning against the same:


City of Thrissur’s tryst with gold..

February 15, 2018

I had written a piece on forgotten history of banking in Thrissur.

Live History India portal has a video on history of gold and finance in the region.

Mr Bond Markets marks its presence over Mr Equity Markets in India…

February 14, 2018

Another nice piece by Niranjan Rajadhyaksha.

He says how India’s sovereign bond market has managed to mark its presence by showing like/dislike for any policy. And more importantly, government taking note which so far has only focused on equity markets:


RBI should be held to higher standards

February 13, 2018

Worldwide, there is lots of talk about central bank independence but very little on their accountability.

Anantha Nageshwaran in this piece rebukes RBI for speaking out of turn in recent monetary policy:

On 7 February, the Reserve Bank of India (RBI) held its sixth bimonthly monetary policy meeting, and the last for the financial year ending March 2018. Coming within a week of the finance minister presenting his budget for 2018-19, it was expected to give us clues about what the RBI thought of the budget and its growth and inflation implications. Separately, stock markets around the world—even in places where the government of the day had not imposed any tax on long-term capital gains (LTCG)—had declined. Fear and uncertainty were beginning to creep back into minds long lost in complacency and risk-love. It was not the occasion for the central bank to strut its anti-inflation credentials. To its credit, the monetary policy committee left interest rates unchanged and said that it was sticking to its neutral stance. That is as it should be.

However, in the press conference that followed the meeting, the RBI governor proceeded to mar this near-blemishless conduct. When asked to comment on whether the investment slowdown in India had ended, he said India faced five different taxes on capital, including the LTCG tax, and that this state of affairs would certainly affect investment. Thus, the governor made an unacceptable foray into fiscal policy, which is the domain of the elected government. In fact, one could even argue that the answer was wrong because the question was about the investment slowdown in India at the margin in the last few years and not about the factors that influenced capital formation in general.

First, the finance minister has just proposed the LTCG tax in the Finance Bill. It is yet to be voted upon by Parliament. The matter is thus “sub judice” and, in that situation, it was wrong on the part of the governor to comment on it.

Second, most of the taxes he mentioned have been around for years, if not decades. Only the LTCG tax on stocks has been reintroduced.

Just like a finance minister is criticised for speaking on monetary policy, similar thing applies to RBI Governor as well. And that too much is out of context.

But this arrangement of a central bank not being accountable suits the government as well. During demonetisation, RBI chose not to answer most public queries and hide behind the government decision. Infact, the central bank even refused to answer queries in Parliament. I mean as a monetary authority of the country, it should have told the public why it chose to usher the decision at such a large scale. Infact,it even chose not to respond to several RTIs citing some or the other legal excuse.

It was this very role of being monetary authority, the earlier RBI chiefs refused government that it will not demonetise. This led the governments to pass the decision through ordinance route.

So not being accountable cuts both ways.

Anantha says (and rightly so) that we should heed lessons from advanced country central banks:

Advanced nations have been ill-served by placing central banks, central bankers and monetary policy on a pedestal. India should avoid repeating that mistake. Public interest will be better protected if experts and commentators hold the RBI to the same standards that they apply to the government.

Central banks are very odd institutions in the overall institutional setting. Earlier one focused on their decisions and now every word matters. They should be far more accountable than they are currently. But that is never the focus…




Scinde Dawk: Asia’s first stamp came from Sindh

February 12, 2018

Superb piece in Live History India.

They narrate this tale of Scinde Dawk meaning Sindh Dak (as in post) which was the first stamp to be released in Asia. Why and how is there in the link..


Photo essay: Delight and wariness at India’s first floating market in Kolkata

February 8, 2018

Superb photo essay on floating market  at Patuli Lake in Calcutta. Moreover, establishing such a market in a place like Calcutta makes it even a better story.


How Bank of Baroda’s misadventures dragged it into South Africa’s political crisis

February 6, 2018

A really gripping narrative by Aman Sethi and Gopika Gopakumar of HT.

A scandal involving Bank of Baroda’s South Africa operations, a cabal of businessmen of Indian origin, and South African President Jacob Zuma, has undermined the reputation of India’s second largest bank and resulted in an unprecedented penalty by the South African Reserve Bank.

It is a familiar story with different names…

RBI Board remains empty which is such an enigma to understand…

February 5, 2018

Over the weekend, the Government appointed 2 members to the RBI Board:

In exercise of the powers conferred by clause (b) of the sub-section (1) of Section 8 of the Reserve Bank of India Act, 1934, the Central Government has nominated Dr. Prasanna Kumar Mohanty and Shri Dilip S. Shanghvi as Directors to the Central Board of the Reserve Bank of India for a period upto February 08, 2021 and March 10, 2021 respectively or until further orders, whichever is earlier.

So now the Board has 14 members:


Notes from Union Budget 2018-19: Cryptocurrency, Cryptoassets and Blockchain…

February 5, 2018

Apart from GIFT City, another thing I noticed in the Budget was Indian government’s worry over Cryptocurrency.

In his speech the FM said:


GIFT city perhaps needs homegrown financial institutions as well..

February 5, 2018

Amidst all the Budget announcements and noise, the one on GIFT City caught my eye.

As a student of banking and financial history, one topic which is of huge interest is history of financial centres. How and why certain centres come to emerge as financial centres first at a national stage and then gradually to international/global levels is quite a study. If one understands this development, much of financial development becomes clearer. Alas, the interest in the subject is hardly much.

In this context, it is always exciting and interesting to learn about GIFT City in Gandhinagar, Gujarat. It is being shaped as an international financial centre by policymakers compared to the mighty Mumbai which evolved more naturally as a financial centre over a long period of time.

GIFT city was one of the top projects of the current Prime Minister when he was CM of Gujarat. Thusm the project has got mentions in the Union Budget.

In 2015-16, the Finance Minister said:


The Purusharthi Refugee: Sindhi Migrants in Jaipur’s Walled City

February 2, 2018

Interesting paper by Prof Garima Dhabal of Presidency College:

This article seeks to understand the spatial arrangement of refugee groups within the walled city of Jaipur in the period after 1947, marked by the braided histories of partition and the merger of princely territories with the newly formed state of India. It focuses on the Hindu Sindhi refugees who had come to Jaipur, traversing the urban centres around the Rajasthan border, in the late 1940s and early 1970s.1 The process of incorporating the Sindhi community, mainly comprising trading groups, in the narrative of urban regeneration of the new provincial capital of Jaipur, was carried out through the trope of purushartha, which roughly translates to “hard work” with Hindu cultural undertones. However, this did not ensure their absolute inclusion in the representational matrix of the city, which is dominated by the image of Rajput royalty or Jain and Bania traders.

This makes the Sindhi purusharthi a specific category for the purposes of governance, but not a legitimate enough identity within the burgeoning discourse of heritage in Jaipur. The city wall also played a metaphorical role in this “inclusive exclusion” (Agamben 1998: 12) of the community. While the “walled city” absorbed them in the retail economy and benefited from their entrepreneurial practices, the recent resignification of the wall as “heritage” by the state authorities has also made the position of Sindhi retailers rather precarious in the new regime of valuation of urban infrastructure. The subsequent sections would further delve into these dimensions of the spatial arrangement of the “walled” enclave of Jaipur in relation to the Sindhi refugees through an ethnographic exploration of Indira Bazar, one of the market spaces created in the 1970s for rehabilitating this group.


How Equity market and bond market are giving different signals about Indian economy…

February 1, 2018

One is still trying to figure the Budget hype and its impact.

But the broad trends in the two financial markets- equity and debt – are showing different signs (Mint edit):


The cloning of India’s Public Sector Banks

January 29, 2018

Prof. Krishnamurthy Subramanian of Indian School of Business writes on how India’s PSBs are so similar to each other:


Soiled Rs 2,000 and new Rs 500 notes cannot be exchanged as rules have not been revised…

January 23, 2018

There is so much to monetary economics than just interest rate cuts. Infact, central bank’s currency management which touches lives of almost all people, is so important to understand. There are multiple laws which have been framed to make this function requiring understanding of monetary laws of the country.

For instance, this news points how people cannot exchange soiled notes of Rs 2000 and new Rs 500 denominations. Why? As the rules have not been updated since demonetisation:

Every Indian currency note prominently bears a promissary message from the Reserve Bank of India Governor, which states: “I promise to pay the bearer the sum of (the respective currency denomination value).”

The spirit of that promise extends to the exchange of soiled notes as well. The Reserve Bank of India Act, 1934 (2 of 1934) stipulates that the exchange of soiled notes is a “duty that the banking system as a whole owes to the public.”

But in what is being seen as a violation of that promissory clause, the RBI is not honouring its promise of the exchange of soiled notes of ₹2,000 and ₹500 denomination even 14 months after they were introduced in November 2016 in the wake of the demonetisation initiative.

The RBI has not framed the Note Refund Rules (NRR) for the new currency notes till date under the Reserve Bank of India (Note Refund) Rules, 2009, which were updated in July 2016, months prior to the demonetisation in November 2016.

There is a seperate rulebook called  “Reserve Bank of India (Note Refund) Rules, 2009which lays the rules for soiled/torn note exchange. It says:

A. Provisions in the Reserve Bank of India Act, 1934:

Section 28: Notwithstanding anything contained in any enactment or rule of law to the contrary, no person shall of right be entitled to recover from the Central Government or the Bank, the value of any lost, stolen, mutilated or imperfect currency note, provided that the Bank may, with the previous sanction of the Central Government, prescribe the circumstances in and the conditions and limitations subject to which the value of such currency notes or bank notes may be refunded as of grace and the rules made under this proviso shall be laid on the table of Parliament.

Section 58(1): The Central Board may, with the previous sanction of the Central Government, by notification in the Official Gazette, make regulations consistent with this Act to provide for all matters for which provision is necessary or convenient for the purpose of giving effect to the provisions of this Act.

Section 58 (2): In particular and without prejudice to the generality of the foregoing provisions, such regulations may provide for all or any of the following matters, viz.-

(a) ……….
(b) ……….
(c) ……….
(q) the circumstances in which, and the conditions and limitations subject to which the value of any lost, stolen, mutilated or imperfect currency note of the Government of India or bank note may be refunded.

B. Note Refund Rules

In exercise of the powers conferred by the proviso to section 28, read with clause (q) of the sub-section (1) and (2) of section 58, of the Reserve Bank of India Act, 1934 (2 of 1934) and in supersession of the Reserve Bank of India (Notes Refund) Rules, 1975, except as respect things done or omitted to be done before such supersession, the Central Board with the previous sanction of the Central Government, hereby makes the following rules for specifying the circumstances in, and the conditions and limitations subject to which, the value of lost, stolen, mutilated or imperfect note may be refunded as a matter of grace…..

It has definitions of different types of spoiled notes:

(f) ‘;imperfect note’; means any note, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated note;

(g) ‘;mutilated note’; means a note of which a portion is missing or which is composed of more than two pieces;

(k) ‘;soiled note:’; means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note.

Then there is discussion on what notes can be exchanged and under what conditions. For instance, imperfect notes will be paid in full. Mutiated notes, the conditions are different for notes in denomination of Rs 1 to Rs 20 and Rs 50 to Rs 1000. It  is actually ironic that the old Rs 500 and Rs 1000 notes have demonetised but we still have rules for their exchange. Read the Rules for more details.

So much to learn and figure..



%d bloggers like this: