Archive for the ‘Indian Economy/Financial Markets’ Category

RBI skipped releasing its weekly balance sheet for 30 June 2017!

July 20, 2017

Apologies for waking up really late to this development (HT: Amit Varma)

As per RBI Act Section 53: (more…)

British Imperialism and the Making of Colonial Currency Systems

July 20, 2017

A fascinating question to think about is British were on Gold Standard for a long time but its colonies were kept on silver. Why were the imperial powers doing this considering a similar currency would have been more imperialistic? Likewise there are several questions on colonial currency systems imposed by other imperial powers. However, most monetary history accounts barely discuss the colonial currency systems.

In this aspect, this book by Wadan Narsey is a breath of fresh air as it discusses British currency policy in its various colonies. The author questions many a standard ideas around currency policy calling them a myth.

Here is a review by Kurt Schuler:

There must be few cases of a publication by an active scholar so long delayed as this book. Wadan Narsey wrote the bulk of it as his dissertation at Sussex University (England), completing it in 1988. That was at the beginning of his career as a university professor in his native Fiji. His retirement, hastened by the military dictatorship of which he was an outspoken critic, gave him the leisure to revisit and revise the dissertation for publication. The result is a work that has at least as much interest as when it was first written. There were many critics of the world monetary system then; there are at least as many now. It is all the more important, then, to know whether previous incarnations of the world monetary system worked better than the present one, or whether they had hitherto neglected disadvantages that should weigh against them.

The central argument of the book is that the British government arranged colonial monetary systems much more for its benefit than for that of the colonies. The British government’s ability to commandeer colonial financial reserves in London was crucial to enabling the Bank of England and the London financial market to avoid a number of crises. Among Britain’s colonies, those with a white majority or a large white minority received more advantageous treatment than majority nonwhite colonies, contributing to their faster economic development.

A must read as it discusses case of India as well. This blog had also reviewed the British currency note policy in this post. As students of Indian economics, these aspects are rarely taught and discussed..



Encouraging Make in India clause to printing banknotes– a case of central bank using industrial policy…

July 19, 2017

This is an interesting development. RBI cancelled two older tenders for Supply of Security Features for Indian Banknotes. It has issued a new tender  which makes it mandatory for the bidders to agree/satisfy the Make in India clause.

The clause states:


Indian economy: A tale of two narratives (and a missing narrative)..

July 19, 2017

I came across this piece on two narratives on Indian economy. One of impressive macroeconomic stability and two of dipping growth which cannot be stimulated by monetary or fiscal policy.

Despite impressive statistics quoted in the piece one clearly sees how much of Indian economic story has been around government policy. The author says there are two narratives but actually there is just one: the role of government in Indian economy.  This is obviously ironical in its own way as we would imagine economy to be shaped mainly by several private hands rather than the one hand of government.

I don’t know but reading the various articles today take you back to yeseteryears when all that mattered to Indian economy was the Indian Government. But we are told that since 1991 things have changed and it is private sector which rules the roost. However, ever since the government was voted in power in 2014, the focus of economic performance of the country is only seen from what government is doing. We have celebrated 100 days, 1 year, 2 years and now 3 years and 2 more to go. There are pieces after pieces highlighting the role of the government which is all so ironical. There is very little on what India’s private sector is really doing.  If Indian economy is indeed doing so well, we need to know about new products being made, new services being created, entrepreneurship and so on.

This glaring missing narrative also perhaps explains the puzzle between the two aspects of Indian economy discussed by the above piece. If macrostability is indeed so great, why is growth dipping? The piece as expected can only think in terms of policy:

How should policy respond? The key is not to panic, but keep fixing the economy’s plumbing. Double down on asset resolution in the banking sector, plow stronger tax-revenue from demonetisation/GST into higher public investment, rein in state deficits to push down the private sector cost of capital, and keep plugging away on reducing infrastructure bottlenecks. Put differently, hang in till the growth dividend from deleveraging and productivity-enhancing reforms (GST, Aadhaar) kicks in. Unfortunately, there are no quick fixes at the moment. Furthermore, overreacting to the second narrative (slowing growth) simply risks jeopardizing the first one (macro economic stability).

Well, what eventually matters is how private sector and households responds to most of these initiatives. It is this narrative which eventually matters. We are told that private sector investments are hardly picking and then there are always talks of jobless growth.

This clearly is the missing narrative which needs more attention than merely looking at government measures..

Smart or dumb? The real impact of India’s proposal to build 100 smart cities

July 18, 2017

Hugh Byrd Professor of Architecture at University of Lincoln has a piece:

The quest to make cities smart and liveable has been promoted alongside increased population densities and urban compaction. We argue that this planning goal is reaching a point where resources are inadequate for the functioning of a city.

Case studies such as Bhendi Bazaar provide an example of plans for increased density and urban regeneration. However, they do not offer an answer to the challenge of limited infrastructure to support the resource requirements of such developments.

The results of our research indicate significant adverse impacts on the environment. They show that the metabolism increases at a greater rate than the population grows. On this basis, this proposed development for Mumbai, or the other 99 cities, should not be called smart or sustainable.

With policies that aim to prevent urban sprawl, cities will inevitably grow vertically. But with high-rise housing comes dependence on centralised flows of energy, water supplies and waste disposal. Dependency in turn leads to vulnerability and insecurity.

Suburbia offers some buffer. Water and power can be collected from individual roofs and food produced in individual gardens. However, we argue that vertical urban form on this scale offers little resilience.

Smart may be, but questions on sustainability are always there..

Riding dangerously on Mumbai locals..

July 18, 2017

Nice article by Bhanuj Kappal:

in recent years, as the 164-year-old railway system struggles to ferry over 75 lakh passengers a day, the adjective that comes up more often is ‘deadly’. According to statistics obtained by rail activist Samir Zaveri under the Right to Information Act, 3,202 people died on the railway tracks of Mumbai in 2016. That averages out to almost nine deaths a day. Another 3,363 were injured. These figures are not statistical outliers, but representative of a long-term trend. The death count for 2015 was higher at 3,304. And according to figures on, 1,618 accidental deaths have been recorded so far this year. That makes the MSR one of the deadliest public rail transit systems in the world.

For years, this damning mortality rate was ignored by the railway authorities and the State government. The press followed suit, relegating statistics about accidental deaths to blurbs on the back pages. And Mumbai’s long-suffering commuters, used to risking life and limb every day on the way to work, became inured to the idea of daily commute as a life-or-death lottery. They even took perverse pride in it, treating a peak-hour ride on the insanely overcrowded Churchgate to Virar fast as a rite of passage towards becoming a real ‘Mumbaikar’. It took the death of 21-year-old Bhavesh Nakate, who was crushed under a train after slipping from its footboard, in November 2015, to wake everyone up. Nakate’s death was similar to hundreds of others that occur every year, but with one vital difference. A fellow commuter had captured his fall on his phone camera. And the video went viral.

A few weeks later, hearing a number of public interest litigations (PILs) on commuter safety and security, a Bombay High Court bench of Justices Naresh Patil and SB Shukre, came down heavily on the State government and the Indian Railways. “[In] no other country would so many deaths not be taken seriously, in India we just sit on the sidelines and watch on,” they observed, asking the authorities to list all measures taken towards addressing the issues of overcrowding and the rising accidents on local trains. “People are dying on the trains and the tracks every day and the authorities cannot continue to keep their eyes shut,” they added. “If you act now and succeed in saving even just one such life, your actions will make a large difference.”

“If this was happening in the US or UK, these officials would be in jail and the Railways would have to pay crores in compensation every day,” says Zaveri, who filed one of those PILs on commuter safety. Having lost both his legs in a railway accident in 1989, Zaveri is now committed to helping other victims. “But this is a country of poor people, so their lives have no value.”

Emphasis is mine. Strong words indeed. Cost of life in India..


“The root cause of the problem is overcrowding,” says veteran transport journalist Rajendra B Aklekar, who has written extensively on the Indian Railways, including Halt Station India, a book on its history. “When Mumbai got saturated we built townships in Kalyan, Dombivali, Thane. We kept on building new townships, but never built a sustainable transport system connecting those townships with Mumbai. So when those people wake up in the morning, they go to the same old stations. That leads to crowding, that leads to everything.”


Trying to figure different monetary standards in India using data from Paper Currency Reserve (1861-1935)…

July 17, 2017

Monetary history despite being highly fascinating, is confusing as well. There are so many terms/standards which one does not understand. If there is one thing positive from India’s demonetisation and rise of digital currency, it is to understand history well. The basics keep coming back and haunting you for your ignorance.

Chandravarkar (1985) in his essay in Second Cambridge Economic History of India said:

India witnessed practically every variety of monetary standard, passing successively from a silver standard to a managed inconvertible silver currency, then almost fortuitously to the gold exchange standard; thereafter, to a paper standard, a gold bullion  standard, and after 1931, to a sterling exchange standard. India also played a pivotal role in the days of the international gold standard, 1890-1914, insofar as her merchandise surplus with the rest of the world and her merchandise deficit with England helped England to square her international payments on current account.

 Keynes in his Indian Currency and Finance Report (1913) too had marvelled over India’s Gold Exchange Standard.

But then whenever you try and figure these different monetary systems you struggle to understand. The dates of transition from once system to another are confusing and difficult to remember.

One useful way to figure all this is to analyse the data. In historical matters, time-series data helps one understand and remember things like no other. The next question is where is the data? Which data should we look at?

Interestingly, British colonists were highly efficient at collecting data especially on monetary and financial matters. We have some useful data which is not used by scholars for analysing Indian monetary history from various lenses.

One such data is that of Paper Currency Reserve, which was instituted by the British in 1861. Before 1861, the Presidency Banks (and other banks) issued their own paper currency. These notes circulated in their respective areas. Post -1857, as powers to run India moved from East India Company to the British Government there were talks of issuing a Government Paper currency. James Wilson the first Finance Member (today’s Finance Minister) had started proposed a Government currency in 1859 but passed away before the idea could be executed.

In 1861, the British authorities set up Paper Currency Reserve which was to issue government paper notes. The power of Presidency Banks to issue banknotes was taken away. Despite suggestions to let the banknotes being universally accepted across the country, the government let them be legal tender only in their respective areas.  These areas were called as circles. Initially they were just three circles which were expanded later to many more over time.

This Paper Currency Reserve is key to figuring the different monetary systems mentioned by Chandravarkar.

The Currency Reserve balance sheet had following heads:


Learning economics from Amol Palekar..

July 12, 2017

Well one Amol is still trying to figure economics, but the other Amol despite not being concerned with the subject has useful lessons. Such is the irony of economics as well. Those who study it get lost in the subject and have nothing much to say, those who don’t study make statements about economics pretty freely in their conversations.

So here goes the brilliant Amit Varma again who points to housing economics lessons from Amol Palekar’s songs. Earlier he pointed globalisation lessons from Raj Kapoor’s Mera Joota Hai Japani song.

He picks two songs this time:

Ek akela is shahar mein/ Raat mein aur dopahar mein/ Aab-o-daana dhoondta hai/ Aashiana dhoondta hai. – Amol Palekar in Gharoanda.

One person, alone in the city/ At night and in the afternoon/ Looking for food/ looking for shelter. In the film Gharaonda, Amol Palekar plays a young man who has come to Bombay (as it was then), and is worried about food and shelter. I can identify with this, as I too was a young man in Bombay once with identical worries. Indeed, most young people migrating to big cities would empathise with Palekar.

Most of us get by when it comes to aab-o-daana, but aashiana can be a different matter. Housing in Mumbai (as it is now) is incredibly expensive, and most middle-class people cannot dream of buying a house. There are two important things I would like you to note here.

One, prices are a matter of supply and demand, and if there is relative scarcity of housing, prices will seem high. That’s just how it is.

Two, the supply of housing is artificially kept low by government regulation. If not for the government, real estate in our cities would cost a fraction of what it now does. If you cannot afford to buy a home where you live, then repeat after me: This is the government’s fault.

There are a number of terrible regulations that lead to this effect. I want to focus on two in this piece.

The culprits are well known: Floor Space Index and Rent Control.

In the end, he picks the second song:

Let’s shift to a pleasant subject now: from real estate to love. As Gharoanda progresses, Amol Palekar finds romance with Zarina Wahab, and the two then sing a version of the song that he sings earlier alone.

Do Diwaane shahar mein/ Raat mein aur dopahar mein/ Aab-o-daana dhoondte hai/ Ek aashiana dhoondte hai.

Two lovers in a city/ At night and in the afternoon/ Looking for food/ looking for shelter.

The two young people have the same problems that the one young person did earlier – but as you can guess, they are considerably happier at the time of singing this song. Thank goodness the government does not regulate Love like it regulates Land.

(Spoiler alert: The artificial scarcity of Land eventually destroys their Love as well. Sigh.)


But there is much more to Mumbai real estate which is not present in most Indian cities. Things like FSI etc will help lower the pressure but not much.  Some apartments where allowed FSI is much higher, the difference between top floor and ground floor apartments could be several lakhs. And for most even the ground floor is unaffordable, so the story ends there.

One can always argue how much more expensive NY would be if FSI were like Mumbai. But even with such high FSI, the one big issue with NYC remains – high cost of apartments. It is perhaps something in these financial centres where property remains unbelievably costly and is such a privilege.

Even the whole property broker market in Bombay is unlike any other. People are migrating to other cities as well, but it is only in Mumbai where you see the clout of the broker. The broker is as big and even bigger than apartment owners. It keeps making your life miserable every 11 months!

Perhaps the song which fits the real estate market in Mumbai is from another movie which showcased crime in the city. The movie was D Company and the song was ” Ganda hai par dhanda hai yeh…”.

Case Study of a Unique Digital Museum: Itihaasa App which looks at history of Indian IT industry..

July 11, 2017

I blogged about this itihaasa app earlier in 2016 when the app was just launched. It is a brilliant and a unique initiative of using the app platform to tell history about an industry, Information Technology in this case.

N Dayasindhu who is one of the key architects of the app has written a paper about this unique digital museum:

This industry case study describes the genesis and development of itihaasa history of Indian IT, a unique digital museum chronicling the evolution of Indian IT over six decades. itihaasa is a free mobile app that captures important milestones defining the history of Indian IT in the voice of key actors who shaped them. It has a rich repertoire of original oral history videos, digital documents, and photographs from personal archives and publications. Users can navigate the itihaasa app based on timeline, people or organization views. Or they can search tags to access specific content. It is unique because the evolution of Indian IT is captured as oral histories of multiple key actors who shaped important milestones, and business history is presented in an entirely digital format.

Useful stuff…

We clearly need more of such apps which gives us atleast some sense of how businesses evolved..

Regulations for Small Finance Banks: A bit too many?

July 11, 2017

Yesterday Ira Dugal tweeted about AU Small Finance Bank trading at 7.5 times its Price/Book Ratio, much more than any other Private Bank.  Case of early froth/bubble in valuation of Small Finance Banks? We will get to know soon. Markets hype both ways – upside and downside- very quickly.

Anyways, over the weekend RBI released a document called: “Compendium of Guidelines for Small Finance Banks”.  Compendium is a deceptive word as it means- a collection of concise but detailed information about a particular subject, especially in a book or other publication. Concise yet detailed.

So are RBI’s guidelines for Small Finance Banks:


How Governments protect their Lutyens Bungalows but remain ignorant about historic monuments…

July 7, 2017

Prof Nayanjot Lahiri of Ashoka University alerts to this new Amendment of the Ancient Monuments and Archaeological Sites and Remains Act, 1958.

The amendment allows construction of public works in area of protected monuments which was prohibited till now:


When big corporates avoid taxes it is called cleverness/arbitrage, when small companies avoid taxes it is called fraud..

July 7, 2017

Nothing is more ironical than seeing big corporate honchos talk about how we should be paying taxes. Their constant ire is at the small businesses who is always blamed for not paying taxes.

However, if one looks at history of global corporates in general, one thing is constant : their figuring ways to avoid paying taxes. Just that most of these ways are termed as clever, arbitrage and so on. Whereas any similar effort by smaller entities is called as fraud. Thus the irony.

One continuously heard these cries during demonetisation and the same is going on in GST as well. Both the big corporates and political class are continuously emphasizing how GST will lead to people paying more taxes. Some others even say those who oppose GST are the ones who don’t want to pay taxes. Really?

The media too is to be blamed here for continuously streaming these messages making the small business player appear as a thief of sorts. The small business player hardly has the time or the graft to defend his case and media does not even care for them barring a few pieces here and there.

The reality is very different of course. The big companies have an army of soldiers with a nice job title as “tax consultants” who try and identify best ways to avoid paying taxes. They create all kinds of mechanisms to hide revenues and profits by creating multiple shell companies . Some others just open a standalone registered office in so called tax-free countries from where they operate all around the world.

Until recently, both big corporates joined hands with small ones to look at ways to protect their earnings against the ever tax hungry government. But now the large corporates have increasingly joined hands with government to shift all problems on to the smaller brother.

To see a government whose base is (or forgotten past) was that of small business/trader make all these claims, makes the Indian case even more ironical.


11th Statistics Day Conference: New Frontiers on Statistical Methods and Information Base

July 7, 2017

RBI celebrated 11th Statistics Day Conference.

There are some interesting presentations especially this one by Prof. N. Balakrishna of Cochin University. It is a primer on time-series with some empirical results on Indian financial time-series.


Nudging to make pass-books issued by Indian banks more transparent and readable…

July 4, 2017

Vivina Vishwanathan of Valueresearch points to how RBI has asked banks to provide more information on the passbooks:


Stock market participation in the aftermath of Satyam accounting scandal

July 4, 2017

Interesting paper by Renuka Sane.

The paper compares Satyam stock holding investors with non-Satyam stock holding investors during the breakout of the scam. The results show that though Satyam investors cash out of the stock intensively but the impact is not long-lasting:


Political economy of caste based reservations..

July 3, 2017

Always a sensitive topic in India.

Ashwini Deshpande  and Rajesh Ramachandran  have a piece on the issue (full paper here):


Could Industrial Revolution have happened in Mysore and Gujarat?

June 29, 2017

This looks like a fabulous book by Kaveh Yazdani of University of the Witwatersrand: India, Modernity and the Great Divergence Mysore and Gujarat (17th to 19th C.).  Industrial Revolution studies are mainly Eurocentric and this book looks at two regions from India – Gujarat and Mysore. These were two relatively advanced regions in India and so could they have their own industrial revolution as well?

Yazdani has a blogpost on the Economic Sociology blog:


Is a Small Finance Bank, Small bank or small finance lending bank?

June 28, 2017

Words are so important.

I was reading this panel discussion in Mint South India Banking Conclave:

Even though you are a small finance bank, you are subjected to higher capital requirements. Are you fine with the regulations?

Ghosh: Small finance banks (SFBs) are specialized institutions, we have the objective of financial inclusion. We have already got a set of norms which we have to comply with like 75% priority sector lending, etc. As we progress as a bank, there are a different set of challenges which we are going to face. It is very important to have a constant dialogue with the regulator. As an example, we all are going to become members of the state-level bankers committee—it assigns various targets for regular commercial banks. Our portfolio is already 100% priority sector loans (PSLs); to that extent things have to be modified. Loans on our book should automatically be classified as PSLs.

Is there any other example in your mind, Vasudevan?

Vasudevan: SFBs are small… Many people believe that the word small is a reflection of the word bank and not the word finance. Many people call us Equitas Small Bank. It is reflected in the guidelines you see, Rs100 crore capital we need and commercial banks need Rs500 crore….

We have (to meet) 75% PSL, it is very onerous. For people like us, there is no problem. Second part is 50% of portfolio is less than Rs25 lakh, these are the two defining characteristics of an SFB. We have no problems with it.

The question is should I aspire to be a small bank or be a big bank? Suppose you have capital of more than Rs500 crore, can you be given the flexibility of a universal bank? We all have invested heavily in technology. We are also filing periodical returns, the only difference is that we are in Basel II (banking norms, less onerous than Basel III).

The two things are obviously not the same. A small bank can give big finance and a big bank can give small finance. Thus, SFB is likely both – a small bank which has been licenced to provide small finance..

Play of words but really important for conceptual clarity..

When Bombay overtook Calcutta: A history of India’s financial geography

June 27, 2017

How could I have missed this one.

My article on Bombay vs Calcutta appeared on Mint’s Sunday edition. It was partly based on my two previous posts – one and two). Though the Mint edition is far more colorful and is crisper.

Thanks a lot to Mint Sunday team for taking this forward in their paper…

Inflation targeting in democratic India…

June 27, 2017

As one was reading this piece by Anantha Nageshwaran, came across this interview by Dr YV Reddy. Both in their own way suggest a need to rethink the new regime of MPC driven inflation targeting in India.

Anantha is more severe with his criticism of both the framework and the media’s recent take on RBI-FinMin rift: