Archive for the ‘Indian Economy/Financial Markets’ Category

Past Economic Surveys put it best: Private investment is India’s best growth mantra

January 30, 2023

My new piece in moneycontrol summing one key lesson from previous economic surveys.

SEBI Study: Analysis of Profit and Loss of Individual Traders dealing in Equity Futures & Options Segment

January 27, 2023

SEBI has released a very interesting study on analysis of retail investors dealing in  Equity Futures & Options Segment.

Key findings:

  • There has been a significant increase of over 500% in the number of individual traders in the equity F&O segment in FY 2021- 22, as compared to FY 2018-19.
  • On average, loss makers registered net trading loss close to ₹ 50,000 in FY 2021-22. The average absolute net loss of a loss maker
    was over 15 times the net profit made by a profit maker.
  • Over and above the net trading losses incurred, loss makers expended an additional 28%* of net trading losses as transaction costs.
  • Those making net trading profits incurred between 15% to 50% of such profits as transaction cost.

Well, whether an investor makes losses or makes profits, the exchanges/brokers which collect majority of the transaction costs make major gains.


Greenium in India’s sovereign green bonds

January 25, 2023

The Government issued the first green bonds today. There was high investor interest in the bonds.

The government has earned a green premium or greenium on the bonds by around 5-6 bps.

Open Market Operations in India – An Appraisal

January 24, 2023

Abhilasha, Bhimappa Arjun Talwar, Krishna Mohan Kushwaha and Indranil Bhattacharyya in this RBI Bulletin article discuss changes in OMO:

In a modern market-based monetary policy operating framework, open market operation (OMO) is the principal instrument of liquidity management by central banks. This article reviews the Indian experience on OMOs and examines their impact on the central bank’s balance sheet. It also examines the role OMOs play in a world with significant spillover effects.


  1. Globally, the scale and extent of OMOs – both sales and purchases – have increased significantly over the past fifteen years. By augmenting/mopping up systemic liquidity, OMOs help in modulating yields which transmit to other financial market instruments.
  2. In the Indian context, OMOs are instruments for altering durable liquidity conditions in the system barring special transactions such as Operation Twist (OT). OMO purchases increase the domestic assets in the balance sheet of the Reserve Bank, and also the reserve money, and vice versa for OMO sales.
  3. An empirical examination in the Indian context reveals that external / exogenous factors such as movements in the US Treasury yields have a significant impact on domestic long-term yields. Given this, our empirical results show that OMOs remain a potent tool to steer long-term interest rates in alignment with the stance of monetary policy.

What Drives Startup Fundraising in India?

January 20, 2023

Rajas Saroy, Ashish Khobragade, Rekha Misra, Sakshi Awasthy and Sarat Dhal in the RBI Bulletin article:

This article presents an analysis of fundraising by the Indian startups over the past decade, along with an overview of the venture capital financing model. The article empirically derives the important factors that determine the quantum of start-up funding at the economy-wide level as well as at the firm level.


    1. There has been an upward level shift of fundraising by the Indian start-ups post-2014. This has been contributed to by the Startup India initiative, along with other enabling policies and the increasing digitalisation of the economy. COVID-19 provided a temporary boost to fundraising.
    2. At the aggregate level, long-run start-up funding is largely driven by the excess return offered by the domestic equity market over the global benchmark, and by the level of domestic economic activity.
    3. At the firm level, unconventional factors like the educational background of founders, pre-existing relationships with institutional investors and popularity matter for fundraising, in addition to the scale already achieved and the sector of operation.


Determinants of Financial Literacy and Financial Inclusion in North-Eastern Region of India: A Case Study of Mizoram

January 19, 2023

Bhartendu Singh, Raj Rajesh, Ramesh Golait and K. Samuel L in this RBI study discuss finacial inclusion in Mizoram:

The study evaluates the determinants of financial inclusion and financial literacy in the under-banked north-eastern region of India based on primary data collected through a survey in the State of Mizoram. A total of 523 respondents were selected from eight blocks covering four districts of Mizoram. The key findings of the study are as follows:

    1. The level of financial awareness in the region was limited – about 32 per cent of the respondents were not aware of any financial products other than the savings bank account.
    2. About 20 per cent of the respondents reported lack of knowledge about basic payment options, and about 43 per cent of the respondents reported lack of usage of available options despite awareness.
    3. About half of the respondents were found to be unaware of financial institutions other than banks, viz., non-banking financial companies, microfinance institutions and small finance banks.
    4. Use of life insurance cover was low among the respondents.
    5. The Financial Inclusion score and Financial Literacy score for the study region were generated using the OECD/INFE (Organisation for Economic Co-operation and Development/International Network on Financial Education) Toolkit. The estimated average financial literacy score was 14.37 on a scale of 0 to 21 (i.e., 68.43 per cent) and the average financial inclusion score was 3.35 on a scale of 0 to 7 (i.e., 47.86 per cent).
    6. Among the identified factors, the place of residence (block), employment type and nature of family (joint versus nuclear) of the respondents were seen to strongly influence their financial inclusion and financial literacy status.

Explainer: What is the Indian government’s green bonds programme?

January 11, 2023

The Indian government released the framework for sovereign green bonds in November last year. The central bank followed in the New Year by announcing an issuance calendar for these bonds on January 6.

I explain in moneycontrol the green bonds framework and the issuance calendar.

Dr. Michael Debabrata Patra re-appointed as RBI Deputy Governor for one year

January 11, 2023

Michael Patra was appointed as DG of RBI on Jan 15 2020 for a period of three years and has been reappointed for another year.

Despite many articles and posts, the government does not get the appointment rules. The rule to appointing people at key policy positions is to give them a tenure which is long (enough), non-renewable and non-dismissable (barring exceptional circumstances). But we do the opposite of short, renewable and easily dismissable.

But then one can take solace from the fact that reappointment was done before 4 days of the tenure term.

Andhra Bank would have completed 100 years in 2023

January 2, 2023

In 1920s, multiple banks were established in India. Of which only few survived and continued to function:

  • Catholic Syrian Bank established in 1920
  • Tamilnad Mercantile Bank in 1921
  • Nainital Bank in 1922
  • Andhra Bank in 1923
  • Karnataka Bank in 1924
  • Synidcate Bank in 1926
  • Lakshmi Vilas Bank in 1926
  • Dhanalakshmi Bank in 1927
  • South Indian Bank in 1929

In 2020s, these banks should be celebrating 100 years of their existence. However, Andhra Bank, Syndicate Bank and Lakshmi Vilas Bank will not be able to celebrate their 100 years. They have been merged/amalgamating recently by another bank: Andhra Bank by Union bank of India, Syndicate Bank by Canara Bank and LVB by DBS Bank.

One hopes the amalgamating banks do care for the long history and release a commemorative volume on the centenary.

Nainital Bank raises FD rates up to 7.10%, celebrates 100 years of existence

January 2, 2023

Shumbham Singh of Business Today reports:

Nainital Bank increased interest rates on fixed deposits under Rs. 2 crore. The new rates will go into effect on January 1, 2023, according to the bank’s official website. After the announcement, the bank is now promising interest rates with tenors ranging from 7 days to 10 years and 3.25 per cent to 5.35 per cent. The bank has additionally introduced the New Scheme Naini 2023 Deposit, on which it guarantees to provide a maximum standard rate of 7.10 per cent.

Nainital Bank Limited was founded in 1922, and as the year 2022 comes to an end today, the bank has successfully completed its 100-year history.

States’ financial position needs to be watched as much as the Centre’s

January 2, 2023

While the aggregate financial position of states looks manageable, the finances of many individual states look weak. My argument in this article I wrote last week for moneycontrol

Indian Big Business The transformation of India’s corporate sector from 2000 to 2020

December 22, 2022

Jairus Banaji in this essay documents transformation of India’s cororate sector particularly big business:

In what follows, I present a precis of the evolution of Indian big business over the last two decades, starting with a fact which is hardly ever foregrounded, namely, that the business families who formed the mainstay of industrial capitalism in the country for a whole three or four decades after Independence have either disintegrated or have been disintegrating and will soon cease to exist as coherent entities, let alone cohesive ones. Next, I shall present the results of an exercise that involves looking at the biggest non-banking companies in the country (both listed and unlisted) in terms of who actually owns them and of the different categories of ownership we can divide them into. Here the chief result is that since the 1960s, when both R. K. Hazari and Mike Kidron wrote fine studies of big business, there have been massive changes in the Indian corporate sector.4 Dominance no longer lies with the fabled large business houses of the past but with an entirely new breed of capital.

In section three, I shall turn to the cycles that span first a major boom (one of the most rapid periods of growth in Indian manufacturing) in the 2000s and then the slowdown that came to grip most areas of private business for the greater part of the last decade. The slowdown began in 2011 and shows no obvious sign of letting up even today. As the quote from Venu suggests, the banks are central to this sharply fluctuating picture, and their abject prostration before private capital casts doubt on whether any such thing as “finance capital” can even be said to exist in India’s economy. In the final section, I offer an alternative perspective that breaks with the shallow characterization of “crony capitalism” in favor of a deeper reflection on what we are up against.

Measuring India’s Digital Economy

December 21, 2022

in this new RBI bulletin article, a team of RBI economists (Dhirendra Gajbhiye, Rashika Arora, Arham Nahar, Rigzen Yangdol anf Ishu Thakur) measure the size of Indian digital economy. They estimate that the share of digital economy is around 22 percent. It is also growing at a faster pace than the physical economy:

India has emerged as a leader in the digital revolution taking place globally but there are few credible estimates on the size of digital economy which hampers evidence-based policy making. This article tries to fill that void by measuring the size of India’s digital economy using Input-Output tables and provides estimates on employment generated by the digital economy.


    • India’s core digital economy (hardware, software publishing, web publishing, telecommunication services, and specialized and support services) increased from 5.4 per cent of Gross Value Addition (GVA) in 2014 to 8.5 per cent in 2019. Including the sectors that have witnessed digital disruptions, the share of digitally dependent economy hover around 22 per cent in 2019.
    • India’s digital economy grew 2.4 times faster than the Indian economy, with strong forward linkages to the non-digital sectors. The digital output multiplier has increased over time, highlighting the role of digital economy investments to drive growth.
    • The employment estimates show that 4.9 million people were employed in the core digital sector. Considering the total digitally dependent economy, around 62.4 million workers are employed in digitally disrupted sectors.

Very interesting.

RBI Releases Fifth Volume of Reserve Bank History (1997-2008)

December 19, 2022

RBI releases fifth volume of its history which covers the period 1997-2008:

The fifth volume of the Reserve Bank of India’s history is released today. This volume encompasses the 11-year period from 1997 to 2008. With this volume, the history of the Reserve Bank of India is now updated up to 2008. The Reserve Bank had initiated the process of preparation of this volume in 2015 under the guidance of an Advisory Committee chaired by Dr. Narendra Jadhav, former Member of Parliament and former Principal Adviser & Chief Economist of the Reserve Bank. The volume has been prepared by a team of writers led by the economic historian Dr. Tirthankar Roy. Other members of the team were K. Kanagasabapathy, N. Gopalaswamy, F. R. Joseph and S.V.S. Dixit.

The volume, published by the Cambridge University Press, contains the institutional history of the Reserve Bank documented on the basis of official records, publications and oral discussions with persons who were closely associated with the working of the Reserve Bank during the period. This volume covers the developments in policies and operations in major functional areas during the period which was marked by two major crises in the global economy, i.e., the Asian financial crisis and the global financial crisis. It covers the tenures of three Governors – the latter part of Dr. C. Rangarajan’s tenure, the complete tenure of Dr. Bimal Jalan and a major part of Dr. Y. V. Reddy’s tenure.

The previous four volumes are available on the below links:

Hoping RBI puts up the fifth volume on its website as well.

The History of the Planning Commission

December 5, 2022

Amit Varma in his super Seen and Unseen podcast has an episode with Nikhil Menon, author of  Planning Democracy: How A Professor, An Institute, And An Idea Shaped India

Society cannot be designed in a top-down way. Central planning was a historic blunder that harmed India — even though it was conceived by great men with good intentions. Nikhil Menon joins Amit Varma in episode 306 of The Seen and the Unseen to talk about the flawed genius PC Mahalanobis, the planning commission, and his own life as a scholar.

Like all Seen and Unseen episodes, this one is amazing.

Government and RBI caution on cryptocurrencies has served India well

December 1, 2022

My article in moneycontrol on how Government and RBI’s caution on cryptocurrencies has served India well

What is the RBI pilot programme for a retail digital rupee?

November 29, 2022

The Reserve Bank of India (RBI) announced that it is starting the first pilot for its retail digital rupee on December 1, marking the first step towards the adoption of a retail digital rupee or retail central bank digital currency (retail CBDC).

I explain the concept of a retail CBDC and the RBI’s pilot project in this moneycontrol article.

The lighter/humorous side of making monetary policy

November 29, 2022

Michael Debabrata Patra, Deputy Governor, Reserve Bank of India in this speech talks about lighter side of monetary policy:

I am honoured to be invited to this year’s Conclave. In a short span of eight years, the SBI Banking and Economics Conclave has emerged as an important platform of eminence and relevance for deliberating on issues shaping the banking system and more broadly, India’s financial sector. This year, the backdrop is a daunting one.

Across the world, monetary policy authorities are engaged in the most aggressive and synchronized tightening in decades. They are resolute in their determination to put the genie of inflation back into the bottle. ‘75’ is the new ‘25’. Their stances and forward guidance sound like the shrill calls of birds of prey. Financial markets are awash with surges of volatility – incoming data trigger either risk-off stampedes or relief rallies. Globally, a widespread fear is that the forceful monetary policy tightening will precipitate a hard landing, i.e., a recession, or several of them. Geopolitical strife with no end in sight, centrifugal forces threatening to tear apart the unifying influence of global integration, and financial fragmentation are the new forces that seem to be chiseling the evolving global economic outlook.

I thought that I would take this opportunity to step back from the heat and flying debris now being associated with the outcomes of monetary policy actions. Instead, I propose to slip backstage and peer into what goes on underneath these outcomes. Perhaps, this may help to understand the outcomes a little better. Perhaps, it will enable a more compassionate view of the people involved in the making of monetary policy, their trials and tribulations.

He points a paper which links how many times a policymaker laughts in the meeting to economic outlook

Turning to the deliberations of monetary policy committees, I would recommend a paper that models these discussions on the basis of verbatim transcripts of the meetings released to the public. It is titled “What’s So Funny About Making Monetary Policy?”16 These transcripts reveal that a member’s statement is sometimes followed by “[Laughter]”. Is there any association between the number of laughs elicited by a member during a meeting, on one hand, and the member’s expectations about the macroeconomy? 

The results show that a member elicits more laughter during a meeting if he or she expects relatively poor macroeconomic performance in the form of higher inflation or lower employment or slower growth. This is a finding of major significance. It transcends monetary policy and has profound sociological and psychological implications. 


This one on central bank communication:

 For years, central bankers were an endangered species. Maintaining a low profile and passing the blame elsewhere were central bankers’ survival toolkits. The story is told of a Chairman of the US Fed who made a courtesy call on his predecessor before taking up office. The predecessor handed the new Chairman three envelopes with the advice that whenever he found himself in trouble at work, he should open the envelopes but one at a time. Each would have advice on what to do. When the new Chairman found himself under attack, he opened the first envelope. It said: “Blame me”. So, the new Chairman blamed the predecessor. After some time, the new Chairman came under attack again. He opened the second envelope. It said: “Blame the government.” So he did that. After some more time passed, he came under attack again. So he opened the third envelope. It said: “prepare three envelopes.” On a serious note, the mainstream view of the 1960s is encapsulated in this remark by Gardner Ackley, then Chairman of the Council of Advisors under Lyndon Johnson, the 36th president of the US: “I would do everything I could to reduce or eliminate the independence of the Federal Reserve”10. Today, all that is changed. Governments uphold the independence of the central bank.

Interesting speech.

Contributions of RBI’s Department of Economic and Policy Research (DEPR) and its role as a think-tank

November 23, 2022

RBI Governor Shaktikanta Das in this speech discusses the role of Department of Economic and Policy Research (DEPR) and its role as a think-tank:

11. For a full-service central bank like the RBI, its research function is all encompassing. Accordingly, the research department has a structure to be able to meet both the immediate as well as the strategic and policy research requirements. It has trained researchers, who not only specialise in specific areas, but also respond to the challenge of working on any issue of immediate relevance. Teamwork helps in pooling the comparative advantage of each, and a robust internal peer review process ensures reliability and quality of research inputs before their use in policy formulation.

12. As noted earlier, standard models, information collection systems and analytical frameworks used before COVID-19 became inadequate to deal with the complex dynamics associated with multiple shocks that hit the economy. Forecasting macroeconomic outcomes – crucial for conducting forward-looking monetary policy because of the usual lags in transmission – required a revamped approach. This involved strengthening the networks for direct collection of information from key stakeholders1, greater reliance on survey-based information, wider use of AI/ML techniques, and new/modified models to capture changes in the behaviour of economic agents to different shocks facing the economy. A full information system, with about 70 high frequency lead/coincident indicators of the economy and use of state-of-the-art models to capture the time-varying dynamics helped us to generate results that passed the tests of robustness.

13. Studying the impact of the pandemic on growth-inflation dynamics and the outlook, proposing policy interventions with rationale and expected outcomes, and assessing the effectiveness of announced measures have been an integral part of the department’s work all through the pandemic. For inflation analysis, increased attention was paid to interpreting prices data available from alternative sources when official data collection came to a halt during the early part of the pandemic. Real time mobility indicators and market arrivals data for agricultural commodities were also put to use. It became critical to study the role of supply and demand side factors as well as the behaviour of price mark-ups in view of the lockdowns. A supply chain pressure index for India was constructed in line with the global supply chain pressure index, which is now updated and monitored regularly for policy purposes.

14. When the inflation target reset date for another five-year period was fast approaching (starting April 1, 2021), a lively debate surfaced outside the Reserve Bank on the appropriateness of the 4 per cent inflation target with the +/- 2 per cent tolerance band. The researchers of the RBI undertook a comprehensive review of the monetary policy framework, examining all relevant issues, and recommended retention of the same target for the next five years. We accepted this recommendation and sent proposals to the government accordingly. The Report on Currency and Finance (RCF) 2020-21 with the theme Reviewing the Monetary Policy Framework has greatly helped in providing clarity on monetary policy and issues related with the framework.

15. With the pandemic’s impact lingering and supply chain disruptions persisting, an objective assessment of the scars of the pandemic and identification of reforms that could raise the country’s growth trajectory became an important research issue. In the RCF 2021-22 with Revive and Reconstruct as theme, the department examined in detail the effectiveness and limits of crisis-time policies and the areas that needed policy attention to rejuvenate growth. The revival of the annual RCF, which had been published uninterruptedly since 1937, after a gap of seven years has been widely appreciated.

16. A widely read publication of the department is the monthly “State of the Economy” article in the RBI bulletin, which is being published since November 2020. This revived the tradition that began with the first issue of the bulletin in January 1947 but was interrupted in 1995. The bulletin also carries research articles on various topics of policy relevance that help inform and guide public debate. Some of the important policy issues on which the economists of the department joined national debate through bulletin articles expressing their independent views include: the impact of RBI’s pandemic related policy measures; the relationship between RBI’s balance sheet size and inflation; the equilibrium real interest rate in India; drivers of movements in the yield curve; COVID-19 impact on food price mark-ups; rural urban inflation dynamics; risk analysis of state finances; the quality of public expenditure; external debt sustainability and vulnerability; privatisation/consolidation of public sector banks; estimation of green GDP for India; and the silent revolution in renewable energy.

17. To further strengthen the general government statistics in India, the maiden Report on Municipal Finances – detailing the local government finances data – was published by the department this month. The report covers finances of 201 municipal corporations (out of around 221), accounting for nearly 70 per cent of the finances of urban local bodies in India. The coverage will be expanded going ahead.

18. The department has also been expanding its scope of research activities to meet evolving challenges in areas such as climate change, digitalisation and global spillovers. The department collaborated with domain experts outside the Bank to compile KLEMS (i.e., capital, labour, energy, material and services) data for India and has recently taken over the full responsibility for the same. The department would also be hosting the 6th Asia KLEMS conference in India next year.

Also on how RBI is strengthening its DEPR:

21. For the research function in the Bank to remain effective, it would require constant upgradation of skills of the economists in the department, recognising the new possibilities in the information age and access to superior computing power at lower costs these days. While the Bank has multiple schemes for training, both in India and abroad, for an economist there are two best ways to acquire the required skills – first, study and write more research papers regularly (or learning by doing); and second, have a PhD that prepares you with all basic skills for conducting research. An Economics Benchmark report by in December 2021 after a survey of 33 central banks found that on average, one in five economists in a central bank have a PhD. I am glad to note that the Reserve Bank compares well as one in four economists in our research department has a PhD. The Bank provides paid leave and financial incentives for staff to acquire PhD degrees and I hope in future our ranking would improve further. An integral part of skill upgradation would be embracing new techniques for applied research. With growing sophistication of the algorithms, the manifold increase in the three Vs of data – volume, velocity and variety, and the quantum leaps in computing, human intelligence can be used better for analysis, with AI/ML allowing automation of data processing.

22. From the standpoint of the Bank, research is increasingly becoming important to almost every major function, as a result of which research units have been set up in other departments. That process needs to be sustained and scaled up pro-actively. Moreover, in a vast and diverse country like India, research on regional issues also merit policy attention.

23. The department must internalise strategic medium to long-term research issues in its research agenda. Separate teams may work on such issues. This would help in identifying and maintaining a list of structural policy changes that can raise the growth trajectory of the economy in a sustainable and inclusive manner.

24. The trifecta of deglobalisation, climate change and deeper penetration of technology appears to be the most anticipated trend for the future. This can be potentially disruptive, requiring strategies to mitigate the associated risks. The aftereffects of the three shocks I mentioned earlier are still unfolding and would warrant constant vigil. The research function of the Reserve Bank, therefore, must remain prepared to respond to these multiple possibilities as it has done in the past.

Indian municipalities and their finances

November 22, 2022

The Reserve Bank of India (RBI) recently released its Report on Municipal Finances (RMF). The RBI has itself called RMF a “first of its kind” report; it’s the first analysis that aims to bridge the gap in public understanding of municipal finances.  RBI has published the report “with the objective of making it a regular annual publication.”

I explain the findings of the report in moneycontrol and its significance for Indian economy.

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