Archive for the ‘Indian Economy/Financial Markets’ Category

How the 1991 reforms changed our lives and who gets the credit?

July 8, 2020

Puja Mehra’s podcast Everyday Economics is rolling on.

The new podcast is with Mr. Jairam Ramesh who discusses 1991 reforms and also tells us how Indian political economy works or does not work.

One may agree/disagree with Mr. Jairam Ramesh but the conversation is quite interesting. How different political actors come together both by choice and reluctance. Indian political economy becomes even more interesting given the scale of diversity..

Evolution of Monetary policy framework in India: Mid-1980s to today

July 8, 2020

Prof Pami Dua in a recent paper in Indian Economic Review:

In 2016, the monetary policy framework moved towards flexible inflation targeting and a six member Monetary Policy Committee (MPC) was constituted for setting the policy rate. With this step towards modernization of the monetary policy process, India joined the set of countries that have adopted inflation targeting as their monetary policy framework. The Consumer Price Index (CPI combined) inflation target was set by the Government of India at 4% with ± 2% tolerance band for the period from August 5, 2016 to March 31, 2021.

In this backdrop, the paper reviews the evolution of monetary policy frameworks in India since the mid-1980s. It also describes the monetary policy transmission process and its limitations in terms of lags and rigidities. It highlights the importance of unconventional monetary policy measures in supplementing conventional tools especially during the easing cycle. Further, it examines the voting pattern of the MPC in India and compares this with that of various developed and emerging economies. The synchronization of cuts in the policy rate by MPCs of various countries during the global slowdown in 2019 and the COVID-19 pandemic in the early 2020s is also analysed.


Webinar: Ancient Indian Antecedents to Economic Thought

July 8, 2020

Prof Satish Deodhar of IIMA to speak on the topic on 11 July 2020 at 4 PM.

Interested folks can register here.

Revisiting the economic thought of Prof K.N.Raj

July 7, 2020

Good friend Prof Aex Thomas of APU makes a case for studying works of KN Raj and History of Economic Thought in general:

In economics, there are classic texts which are frequently mentioned but seldom read. The subfield of history of economic thought (HET hereafter) is one arena where these path-breaking texts are systematically studied. A close study of the classic works of Adam Smith, Karl Marx, Alfred Marshall, and John Maynard Keynes will make it abundantly clear that economic ideas do not evolve in a linear manner whatsoever, and that the work of Smith cannot be viewed as an inferior version of Marshall’s as is generally believed. While there exists some interest in systematically studying the works of Smith, Ricardo, Marx, and Keynes, the same cannot be said for the work of Indian economists such as B. R. Ambedkar, Krishna Bharadwaj, Kanta Ranadive, and V. K. R. V. Rao, to name a few. It is in this spirit that I wish to engage with the work of K. N. Raj.

More power to likes of Alex for furthering the cause of studying works of Indian economists..

How Hyderabad transformed into a modern city post the outbreak of plague in early 20th century

July 7, 2020

There are fair bit of articles on how Mumbai (and other cities) transformed post the plague of 1890s.

My promising student Aasha Eapen (who writes a blog as well) points me to this article on Hyderabad fortunes turning post the plague in 1911.


Managing groundwater in India: rationing the commons

July 6, 2020

Nicholas Ryan and Anant Sudarshan in the new NBER WP:

Common resources may be managed with inefficient policies for the sake of equity. We study how rationing the commons shapes the efficiency and equity of resource use, in the context of agricultural groundwater use in Rajasthan, India. We find that rationing binds on input use, such that farmers, despite trivial prices for water extraction, use roughly the socially optimal amount of water on average. The rationing regime is still grossly inefficient, because it misallocates water across farmers, lowering productivity. Pigouvian reform would increase agricultural surplus by 12% of household income, yet fall well short of a Pareto improvement over rationing.


Analysing fiscal conditions of India’s States..

July 6, 2020

Sangita Misra, Kirti Gupta and Pushpa Trivedi in this RBI research paper analyse fiscal conditions of India’s states pre-covid:

Recognising the increasing precedence of fiscal shocks leading to a deterioration in states’ debt due to the realisation of contingent liabilities, this study assesses the debt sustainability of Indian states by employing both conventional debt and augmented debt, obtained by incorporating information on states’ guarantees and their likely fallout on states’ budgets.

The study uses the standard indicator-based approach and an empirical panel data framework for the post-Fiscal Responsibility Legislation (FRL) period 2004-05 to 2017-18. Results indicate that states’ debt is just about sustainable with some potential signs of unsustainability. Guarantees given by states, if invoked, could certainly pose a potential risk to debt sustainability for Indian states.

The clear policy implications that emerge from the paper include the need to revisit and review states’ FRLs with the inclusion of debt as a medium-term anchor, coupled with greater transparency with regard to contingent liabilities/ off-budget borrowings. The paper does not cover the COVID-19 pandemic period and its impact on state finances.

The impact of Covid-19 on State finances is a different story altogether…

Impact of Leverage on Firms’ Investment: Decoding the Indian Experience

July 2, 2020

Avdhesh Kumar Shukla & Tara Shankar Shaw in this new RBI WP:

This paper examined the impact of firm’s leverage on corporate investment in India. The findings of the paper suggested that the high leverage of firms has an adverse impact on their capital expenditure. Also, the relationship between leverage and firm’s investment was found to be non-linear.

Leverage at higher level affects investment decisions much more adversely, particularly for firms with lower investment opportunities. Leverage may affect a firm’s investment behaviour in multiple ways. It constrains firm’s capacity to mobilize external resources for financing new projects. It may discourage shareholders from supporting higher capital expenditure through increased borrowings, as in a scenario of high leverage, major gains from investment may accrue to debtholders (Krznar and Matheson, 2018).

We also find that firms increase their leverage during high economic growth phase, banking on the durability of such high growth. The findings of the paper suggest that the initiatives to clean up balance sheets of banks and deleveraging by non-financial corporates should help in the revival of investment cycle.


Government of India’s Special liquidity scheme for NBFCs/HFCs

July 2, 2020

RBI issued a press release on this special liquidity scheme announced by the government:

As per the Government decision, SBICAP which is a subsidiary of the State Bank of India has set up a SPV (SLS Trust) to manage this operation. The SPV will purchase the short-term papers from eligible NBFCs/HFCs, who shall utilise the proceeds under this scheme solely for the purpose of extinguishing existing liabilities. The instruments will be CPs and NCDs with a residual maturity of not more than three months and rated as investment grade. The facility will not be available for any paper issued after September 30, 2020 and the SPV would cease to make fresh purchases after September 30, 2020 and would recover all dues by December 31, 2020; or as may be modified subsequently under the scheme.


SBI and loan giving NBFCs regulated by RBI, SBICAP type capital market firms regulated by SEBI and the liquidity scheme coming from the finance ministry. Hope it is all being coordinated properly.

How Patanjali’s Coronil and Swasari make mockery of medical regulation in India

July 1, 2020

Damning piece by Leroy Leo and Goutam Das in Mint:

Besides exaggerated claims, Patanjali’s conduct could have fallen short of both legal and ethical boundaries. The company picked speed over scientific rigour, fuelling doubts on the quality of its clinical trials. In its application of clinical trial with the Clinical Trials Registry of India (CTRI), the company declared that its first patient was enrolled on 29 May. The estimated duration of trial mentioned two months but by 23 June, Patanjali was ready with the medicine, its packaging and marketing plans.

At the conference, Ramdev said the medicines would be available in seven days and an app had been readied to order home deliveries. Most of the other trials have a far longer time window—the Dabur study, which involves multiple sites, declared that the estimated duration of trail is eight months.

“Purely from a process point of view, it (the Patanjali claim) makes a mockery of drug regulation in India. I don’t understand what is the point of having the Drugs and Magic Remedies (Objectionable Advertisements) Act, which provides for criminal prosecution,” Dinesh S. Thakur, a public health activist and an expert in drug regulation, said.

Why didn’t Gandhi pay much attention to Spanish Flu?

June 29, 2020

There is little doubt that Spanish Flu for all its severity has missed most history books. The Flu occurred during the momentous period of WWI and added to the ongoing tragedy in world history in terms of lost lives and tarnished families. Yet, it barely features in historical discussions.

Thomas Weber of La Trobe University and Dennis Dalton of Barnard College add to this discussion in this interesting EPW paper. They look at Mahatma Gandhi’s letters during the period to figure what was he thinking and writing during the pandemic. Despite his own family getting infected, Gandhi paid very little attention to pandemic:

When David Arnold urged historians in his 2018 paper to study the 1918 flu pandemic, he could not have known that only two years later his admonition would prove so relevant to the COVID-19 catastrophe. Suddenly the media features lessons to be learned from this “forgotten” scourge of 1918 (Kolata 2020). Is there anything that can be learned from Gandhi’s less than expected ­involvement with the Spanish flu either about him personally or about his position of leadership in the nationalist movement?

As we have shown, Gandhi left the pandemic unmentioned in his public discourse at the time as well as in his Autobiography a decade later. Yet Gandhi, who was dealing with his own illness, was not alone among India’s foremost political leaders in this respect. Jawaharlal Nehru began his political career in 1916. When he recalled that crucial period ­after the war ended, he failed to note the 1918 pandemic in either his autobiography Toward Freedom (1958) or later in Discovery of India (1967).5 The omission in the latter is particularly curious. Nehru did present this moment in graphic detail by relating first the ­economic and psychological deprivation that India endured as a result of British imperialism. He pointedly includes the suffering among all strata of society, “the quagmire and defeatism” directly caused by colonialism. Then, this enigmatic comment:

And this process had eaten its way deep into the body and soul of India, poisoning every aspect of our corporate life, like that fell disease which consumes the tissues of the lungs and kills slowly but inevitably. Sometimes we thought that some swifter and more obvious process, resembling cholera or the bubonic plague, would have been better; but that was a passing thought… And then Gandhi came. (1967: 379)

A puzzling paradox—not only does Nehru miss reinforcing his case against the raj by referencing here the 1918 pandemic, but he implicitly wishes that the flu epidemic had happened without ­remembering that it did. The amnesia is total. And another irony worth noting is that like Nehru, Gandhi never associated the 1918 pandemic with the cost
of ­colonialism.

Where does this leave us? Regardless of Spinney’s assertions, it was not influenza but dysentery, exhaustion, what has been termed a “nervous breakdown,” and surgery for piles that took Gandhi’s mind off matters that would usually have been of fundamental importance to him, especially given that it had laid ashram members low and even lead to the death of close relatives. He more or less ignored the epidemic that was raging around him as Nehru, the British ­authorities in India, and historians of the Raj had done, but perhaps with more reason for doing so.


Conversation with Prof Govinda Rao on Indian Economy

June 29, 2020

The youtube recording of the conversation is here.

Prof Govinda Rao touched on several ailments facing Indian economy. It is going to be a long journey towards normalcy.

Conversation on Relevance of Business History with Lakshmi Subramanian

June 29, 2020

The conversation was last week.

The youtube recording is here.

Prof Lakshmi made several interesting points in the conversation. Most people agree that business history is highly relevant but continue to struggle to teach the subject formally in business/management education.  We have to somehow name the subject differently or weave history in the other subjects.

RBI cautions Banks and NBFCs for sourcing loans by over Digital Lending Platforms

June 25, 2020

RBI issued a notification yday saying it is welcome that banks/NBFCs have tied up with digital platforms to give loans. However, this does not imply that banks are free from following lending guidelines. Infact, they have to be doubly watchful:

It has been observed that many digital platforms have emerged in the financial sector claiming to offer hassle free loans to retail individuals, small traders, and other borrowers. Banks and NBFCs are also seen to be engaging digital platforms to provide loans to their customers. In addition, some NBFCs have been registered with Reserve Bank as ‘digital-only’ lending entities while some NBFCs are registered to work both on digital and brick-mortar channels of credit delivery. Thus banks and NBFCs are observed to lend either directly through their own digital platforms or through a digital lending platform under an outsourcing arrangement.

2. It has further been observed that the lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of which, customers are not able to access grievance redressal avenues available under the regulatory framework. Of late, there are several complaints against the lending platforms which primarily relate to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behavior.

3. Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code, etc. issued to banks and NBFCs, a reference to which is drawn in the Annex. It is, therefore, reiterated that banks and NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the Fair Practices Code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services.

4. It must be noted that outsourcing of any activity by banks/ NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them. Wherever banks and NBFCs engage digital lending platforms as their agents to source borrowers and/ or to recover dues, they must follow the following instructions:

a) Names of digital lending platforms engaged as agents shall be disclosed on the website of banks/ NBFCs.

b) Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the bank/ NBFC on whose behalf they are interacting with him.

c) Immediately after sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned.

d) A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/ disbursement of loans.

e) Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the banks/ NBFCs.

f) Adequate efforts shall be made towards creation of awareness about the grievance redressal mechanism.

5. Any violation in this regard by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously.

Conversation with Prof Lakshmi Subramanian: Relevance of Business History for Management Education

June 23, 2020

This weekend is a double bonanza. Following conversation with Prof Govinda Rao on Indian economy, we have another one with Prof Lakshmi Subramanian on relevance of Business History. One can register here for the Business History one.

Business History, as a discipline, has been taught in some business schools since the 1970s. However, it has only recently become more common in the curriculum in management schools across the world. A course in Business History attempts to bridge the gap between management studies and humanities, enabling an interdisciplinary approach to business studies.

In this webinar, we will discuss the following questions: What is business history? Why is it relevant for management education in India? How should we teach it? What can history teach us about business management in the contemporary world? The webinar will be of interest to students and educators in management and history.

Business history is vitally important to understand economic history and developments. However, it is hardly taught despite having multiple MBA institutes in India. Ahmedabad University is a rare place where we teach Business History .

Do log in to understand what entails business history and what we can learn from a really interesting subject.

Conversation with Prof M. Govinda Rao: COVID-19 Crisis and Response by the Indian Government

June 23, 2020

The conversation with Prof M. Govinda Rao is on June 26, 2020 at 5:00 pm. One can register here.

The unprecedented COVID-19 crisis has severely impacted the economy leading to losses in both lives and livelihoods. In order to counter the downturn, the Indian Government came up with a fiscal stimulus worth Rs 20 lakh crore (10% of GDP) to support agriculture, industry, MSME, labourers,etc.

However, the stimulus has raised more questions than answers. Some economists say that the actual scale of the stimulus is much smaller in magnitude and questioned its effectiveness to revive the Indian economy. Others have raised concerns over sources of financing the stimulus and add the burden lies with the already ailing banking system. The crisis has also raised questions over the relationships between Central and State Governments.

There cannot be a better person than Prof Govinda Rao to answer these questions given his wide experience in India’s policymaking and research. He has written on these topics extensively. The Conversation series invites all students of economics and those interested in economics to join us in what promises to be a fascinating discussion.

Maharashtra State Co-operative Bank reports net NPA of 0% for the first time in history of 109 years

June 22, 2020

From Free Press Journal:

Maharashtra State Co-operative Bank Limited (MSCB) has reported a net profit of Rs 325 crore with net NPA at zero per cent in the financial year ended on March 31, 2020. The cooperative bank has claimed that net NPA of zero percent has never happened before in the bank’s history of 109 years.

The bank has reported Rs 1,345 crore of gross profit in the financial year ended on March 31, 2020.

In FY 2019-2020, the bank made 100 per cent provision which is why for the first time the bank reported zero per cent net NPA. The national average of provision coverage ratio (NPA provision) of commercial banks is 46 per cent whereas for Co-operative banks it is 64 per cent.

The bank has not revealed its gross NPA in its statement. Meanwhile, the net worth of the company has dropped in FY 2019-2020 to Rs 2,282 crore from Rs 2,682 crore in FY 2018-2019.

Do We Need A New Approach To Health Systems Design In India?

June 22, 2020

Dr. Nachiket Mor spoke at Ahmedabad University last Saturday. The youtube recording is here.

It was truly a treat to see a banker with 20-plus years of experience talk about healthcare challenges in India and need to change our approach.  Just like he tried to bring some fresh ideas the space of financial inclusion, he is trying to do the same in healthcare as well.

The existing researchers in this space and the new ones wanting to join the space should spend some time at the video. Those not in healthcare should marvel at ways someone can transition to a completely new field with such panache and ideas.


Renaming Kolkata seaport and remembering its amazing history

June 22, 2020

Sundeep Khanna in his first article in Moneycontrol (after writing for Mint) reflects on the recent renaming of Kolkata seaport as Dr. Syama Prasad Mukherjee Port.

The sea route from Boston to Kolkata is long, arduous and fraught with risks. A ship leaving the Port of Boston goes on to the Gulf of Maine, enters the North Atlantic Ocean heading for the Strait of Gibraltar, thereon to the Alboran Sea and the mighty Mediterranean, emerging in the Gulf of Suez and the Red Sea, heading for the Arabian Sea and then on to the Indian Ocean, the Gulf of Mannar, the Palk Strait and finally, the Bay of Bengal before narrowing in to the Kolkata Port.

Imagine embarking on such a hazardous voyage over 300 years ago when parts of the passage were through unknown domains. Surely, such bravado could only be justified by the promise of bounty at the end.

In the 17th century, that prize was the trading city of Calcutta, whose port was renamed last week to Syama Prasad Mookerjee Port. The new name for the Kolkata Port honours the role of an unsung political hero who was also the founder of the Bharatiya Jan Sangh. But it also brings the spotlight back, albeit briefly, on the oldest surviving port in the country, one that evokes memories of a bygone era when India was a hugely influential destination on the global maritime routes.

At its peak, Calcutta, as it was then called, sent out and received ships to and from every corner of the globe though it has the trading links with Europe and West Asia that are better known. There is, for instance, evidence of trade between Calcutta and Massachusetts back in the 17th century with items such as lumbar, wines and ice being shipped from the US city to India while silk, saltpetre, ginger and jute went the other way. The voyages must have required some courage since the Hooghly was and remains a fierce river. Watercolour paintings from that era capture the ferocity of the waves even as menacing dark clouds loom overhead.


How India’s Banks Navigated The Last Global Pandemic in 1918?

June 19, 2020

My new piece in BQ.

I review how Indian banking system fared during the 1918 pandemic. Infact 1918 was quite a crisis year with multiple crises. Yet banks did well. Why? Answer: World War I. Read the piece for more details….

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