Archive for the ‘Indian Economy/Financial Markets’ Category

‘Consumerisation’ of banking in India: Cyclical or structural?

July 29, 2021

Rajeshwari Sengupta (IGIDR) and Harsh Vardhan (SP Jain) in this Ideas4India article show how Indian banking has become more consumerised over the years:

Over the past decade, India’s banking sector has undergone a transformation in terms of the proportion of credit extended to consumers and industry – with consumer credit now accounting for a larger share. In this post, Sengupta and Vardhan examine this change and contend that the next couple of years would be crucial in determining whether the ‘consumerisation’ of banking is a cyclical or structural phenomenon.

Banking in India appears to be at a crucial juncture. The next couple of years will decide if it goes back to being a lender to industry and businesses, or if it will continue to focus on consumer lending. If the ‘consumerisation’ of banking continues, it will have a profound impact on the economy in general and on the growth of industry in particular. For sustained economic growth, capital expenditure cycles will have to be revived. Indian companies will have to get back to investments and will need credit to do so. The preference of bankers to lend to consumers over industry, could create a credit shortfall, which may impede the investment cycle and ultimately harm economic growth.

Hmm..So will we need to go back to old model of establishing industrial banks/DFI to finance industry?


30 years of India’s economics reforms: Mercatus Centre starts ‘The 1991 Project’

July 26, 2021

Mercatus Centre at George Mason University has started ‘The 1991 Project‘, on the 30 years of India’s reforms:

On July 24, 1991, amid economic crisis and political turmoil, a budget speech changed the course of Indian history.

After decades of socialist planning, India’s finance minister Manmohan Singh announced the country would embrace markets. It was a change that would lift a quarter of a billion people out of poverty in the decades that followed, and leave no part of Indians’ lives untouched.

Yet three-fifths of all Indians have been born since 1991. Having not experienced the crisis, nor the socialist regime that preceded it, they are unfamiliar with the dramatic impact of the 1991 liberalization and the lessons it holds for India’s future. On its 30th anniversary, we seek to revive the ideas and policies that can continue to foster economic growth in India.

Shruti Rajagopalan in the lead essay gives her perspective on the importance of reforms. In the end, she describes ‘The1991Project’:

The 1991 Project is an effort to kickstart a discourse on economic growth-centered reforms in India by focusing on economic ideas. In the coming months, our team will publish essays, data visualizations, oral histories, podcasts, and policy papers demystifying the Indian economy.

The project hopes to raise and answer many questions. Why does economic growth matter? How did socialist planning impoverish India? If socialism was so bad, why did India adopt it as an economic model? How did India switch from a command-and-control to a market economy? What is the political economy of institutional persistence and change? How can India achieve high rates of economic growth once again?

We, the contributors to the 1991 project, will discuss the Indian economy and life under socialism and after liberalization. We will cover the salient economic ideas over the past century and their impact on Indian policy. We will tell the stories of the madmen, and academic scribblers, and intellectuals, and technocrats who reformed India. We will discuss the way forward for India to strengthen institutions that can support a market economy. And most importantly, we will discuss policies that can enable economic growth.


India’s CBDC: RBI working towards a phased implementation strategy and examining use cases

July 23, 2021

RBI Deputy Governor T Rabi Shankar in a speech yesterday (22-Jul-2021) spoke on CBDC and RBI’s take on it.

Central Banks across the globe are engaged in exploring CBDCs and a few countries have also introduced proofs of concept / pilots on CBDC. The High Level Inter-Ministerial Committee (November 2017) constituted by Ministry of Finance, Government of India (GoI) to examine the policy and legal framework for regulation of virtual / crypto currencies had recommended the introduction of CBDCs as a digital form of fiat money in India. Like other central banks, RBI has also been exploring the pros and cons of introduction of CBDCs since quite some time.

Generally, countries have implemented specific purpose CBDCs in the wholesale and retail segments. Going forward, after studying the impact of these models, launch of general purpose CBDCs shall be evaluated. RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption. Some key issues under examination are – (i) the scope of CBDCs – whether they should be used in retail payments or also in wholesale payments; (ii) the underlying technology – whether it should be a distributed ledger or a centralized ledger, for instance, and whether the choice of technology should vary according to use cases; (iii) the validation mechanism – whether token based or account based, (iv) distribution architecture – whether direct issuance by the RBI or through banks; (v) degree of anonymity etc. However, conducting pilots in wholesale and retail segments may be a possibility in near future.

On legal matters:

Although CBDCs are conceptually no different from banknotes, introduction of CBDC would require an enabling legal framework since the current legal provisions are made keeping in mind currency in paper form. Under the Reserve Bank of India Act, 1934, the Bank is empowered to “…regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage” (Preamble).

The Reserve Bank derives the necessary statutory powers from various sections of the RBI Act – with respect to denomination (Section 24), form of banknotes (Section 25), status as legal tender (Sec 26(1)) etc. There is a need to examine consequential amendments to other Acts like The Coinage Act, 2011, FEMA, 1999, Information Technology Act, 2000 etc.

Even though CBDCs will be a primarily technology driven product, it will be desirable to keep the legislation technology neutral to enable coverage of a variety of technology choices.

However, this bit on credit creation needs some updating:

CBDCs, depending on the extent of its use, can cause a reduction in the transaction demand for bank deposits. Since transactions in CBDCs reduce settlement risk as well, they reduce the liquidity needs for settlement of transactions (such as intra-day liquidity). In addition, by providing a genuinely risk-free alternative to bank deposits, they could cause a shift away from bank deposits which in turn might reduce the need for government guarantees on deposits (Dyson and Hodgson, 2016).

At the same time reduced disintermediation of banks carries its own risks. If banks begin to lose deposits over time, their ability for credit creation gets constrained. Since central banks cannot provide credit to the private sector, the impact on the role of bank credit needs to be well understood.

Plus, as banks lose significant volume of low-cost transaction deposits their interest margin might come under stress leading to an increase in cost of credit. Thus, potential costs of disintermediation mean it is important to design and implement CBDC in a way that makes the demand for CBDC, vis‑à‑vis bank deposits, manageable.

As Bank of England researchers (followed by other central banks) showed that banks first create credit which comes back as deposits. So banks are never really credit constrained and certainly not by deposits. The contraints are more on real economy side i.e. whether banks can identify are economic opportunities and so on.   Another constraint is regulations.

Podcast on History of analytics in India: Linking World War-I, Karl Pearson, PC Mahalanobis, Indian IT industry and many more

July 20, 2021
Karthik Shashidhar has started a podcast named Data Chatter.
Data Chatter is a podcast on all things data. It is a series of conversations with experts and industry leaders in data, and each week we aim to unpack a different compartment of the “data suitcase”. The podcast is hosted by Karthik Shashidhar. He is a blogger, newspaper columnist, book author and a former data and strategy consultant. Karthik currently heads Analytics and Business Intelligence for Delhivery, one of India’s largest logistics companies. You can follow him on twitter at @karthiks, and read his blog at

In the 4th episode, Karthik speaks to Dr. N Dayasindhu who gives a fascinating historical account of data analytics in India. I mean there are so many threads in India.

Analytics and Data Science have become mainstream career choices for graduating students in India nowadays. Analytics companies are nowadays among the largest recruiters at engineering colleges.

How did we get here? How did data and analytics become so big, and so mainstream in India? In order to understand this, we need to understand the full history of analytics in India, and this is a story that goes back over a hundred years.

Today’s guest is N Dayasindhu, co-founder and CEO of itihaasa Research and Digital. For the past two decades, he has been working on R&D and innovation management especially focused on IT. He is working on the evolution of business and technology focused on IT and related domains in the Indian context. In an earlier avatar, he was a consultant advising MNCs setting up high-performance R&D and IT organizations in India.

00:03:20 – PC Mahalanobis returns to India (1910s)
00:12:30 – Using analytics for engineering problems at IISc (1950s) 00:23:00 – Analytics in the industry in India (1960s)
00:33:00 – Big tech coming into India (1980s)
00:35:30 – GE sets up captive in India (1990s)
00:39:45 – Analytics services startups; IT firms get into analytics (ealrly 2000s)
00:49:30 – Analytics training institutes in India (2010s)
00:52:00 – How to characterise analytics professionals in India

Do check Dayasindhu’s fascinating work – Itihasa which is chronicling and archiving history of Indian IT industry.

The turnaround story of Indian Overseas Bank

July 20, 2021

G Balachander of Hindu Business Line in this article explains the turnaround of IOB.

In 2017, R Subramaniakumar and his team embarked on a massive turnaround programme, with a multi-pronged strategy under which it used INR surplus swap option, rebalanced its portfolio by significantly reducing exposure to large corporates, brought in huge HR focus, and perfected the IT systems.

Many details in the article.

52 years of Bank Nationalisation: Time to move ahead

July 19, 2021

On 19 July 1969, Indian government nationalised 14 banks.

Tamal Bandyopadhyay in Business Standard says:

Nationalisation has served its purpose. It’s time to move ahead, keeping majority ownership of the government in a few banks to serve people.

Tamal has posted a free version of the article on Linkedin.

Analysing the Financial Portfolio of Indian Households Following Different Faiths

July 16, 2021

Rakshith Ponnathpur of Dvara Research in this blogpost:

Social norms and religious beliefs have an influence on all aspects of our lives, financial behaviour notwithstanding. This can lead to significant differences in the financial well-being of different communities: religious, regional, ethnic, racial, caste, cultural, etc. In addition to these endogenous factors, other exogenous factors such as the social, cultural, economic, and political capital held by the communities also contribute to these differences. While discussing the factors responsible for such differences observed is beyond the scope of our work, there is merit in checking whether and where these differences exist and to what extent, so that it can better inform such conversations.

In this post, we carry out such an exercise by analysing the financial portfolios of Indian households adhering to different religious faiths,[1] using the nationally representative Consumer Pyramids Household Survey (CPHS) data from the Centre for Monitoring Indian Economy (CMIE). We use their income, expenditure, assets, liabilities and demographic data from the ‘August to December 2020’ wave to build a financial profile of households belonging to different faiths and analyse the differences between them.


Overall, we find that Jain and Sikh households are significantly better off than the national average in terms of their income and educational levels, as well as their financial portfolios. Christian households perform above average in terms of income and education, but around the average in terms of their financial portfolios. Muslim households are characterised by below-average income and education levels, and participation across all asset classes. All characteristics of Hindu households hover around the national average, owing to their large share in the population as well as their over-representation in the dataset.

Much more in the post and these slides.

Monetary Policy Transmission in India: How is external benchmark linked lending rate working?

July 16, 2021

Avnish Kumar and Priyanka Sachdeva in the recent RBI bulletin, discuss how shift to external benchmark rate has impacted banks and monetary transmission:

The transmission of policy repo rate changes to deposit and lending rates of scheduled commercial banks (SCBs) has improved substantially since the introduction of external benchmark linked lending rate (EBLR) regime in October 2019.

Data collected from banks suggest that the share of outstanding loans linked to external benchmark in total floating rate loans has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent by the end of 2020-21. The adoption of external benchmark-based pricing of loans has strengthened market impulses for a quicker adjustment in deposit rates.

Further, a combination of surplus liquidity conditions amidst weak credit demand conditions has enabled banks to lower their deposit rates. The lowering of deposit rates has resulted in the decline in cost of funds for SCBs, prompting them to reduce their MCLRs, and in turn their lending rates.


Will Navi’s index fund shake up the passive fund industry?

July 14, 2021

I had blogged about how Sachin Bansal of Flipkart has decided to improve state of financial services in India. His new venture is aptly named Navi meaning new.

The first fund offered by Navi Nifty 50, an index fund which tracks Nifty50 index. The fund was just launched recently and its new fund offer period got over and subscriptions will open on 19 July.

The USP of Navi Nifty50 is a Total Expense Ratio (TER) of 0.06% which is much lower than other index funds which charge in the range of 0.1% –  0.3%.  The lower TER means the savings go back to investors. So if there is another fund which generates identical returns as Navi Nifty50, one save Rs 1 lakh extra in Navi due to a lower TER for a 10 year investment.

Will Navi shakeup the highly passive ‘passive fund industry’ in India? This BS article says index funds likely to avoid price war. They deem lower TER as a marketing ploy and is financially unsustainable. Time will tell.

Interesting time to apply concepts of microeconomics to the mutual fund industry.

RBI issues guildelines for retail investors to open gilt accounts with the central bank

July 13, 2021

In Feb-21, RBI announced that retail investors will be allowed to open gilt (govt bond) account with the central bank. This wil be like a demat account where investors can buy and sell government bonds.

Yesterday (12 Jul 2021), the central bank  released guidelines on opening gilt retail account.


History of Bank economists in India

July 7, 2021

I came across an interesting paper by Murari N Ballal and B.S. Damodar  written in 1980. The paper is titled Economic Research in Banks and is available in a book edited by Dr NK Thingalaya: On bankers and economists.

The paper surveyed economics departments of banks in 1980 and figured their history. RBI was the first banking entity to start a research department in 1943-46 (exact year not clear). In 1955, Imperial Bank was nationalised and renamed State Bank of India. SBI became instrument of State policy with special responsibility of branch expansion and lending in rural areas. As bankers lacked this knowhow of developmental banking, economists were sought in banks. Accordingly in 1956, SBI became the first bank (who else) to have an economic research department headed by Mr DS Shanker.

Post-SBI, Dena Bank, Bank of Baroda, Bank of India and Syndicate Bank established their own ERDs.

In 1969, 14 banks were nationalised leading to all kinds of development targets pushed to nat banks. This led to some more banks establising ERDs and asking economists to assist bankers by giving them research inputs to meet targets.  The ERDs mainly dealt with planning & development work. Therefore, some banks even named their ERDs as Planning and Development Department. Even economists were given titles as Deputy General Manager – Planning.

As per the authors’ research, by 1980 14 nationalised banks had ERDs. Their is an interesting mention of first chief economists (banks had different job title for chief economist at that time) in the paper as well:

Bank Name Year of Establishment Chairperson First Chief Economist
State Bank of India 1956 Dr John Mathai Mr. D.S. Sanker
Dena Bank 1957 NA Mr Pravinchandra Gandhi
Bank of Baroda 1962 Mr. N.M. Choksi Dr A.C.Shah
Bank of India 1962 Mr A.D. Shroff Mr. VT Mathews
Syndicate Bank 1966 Mr. TA Pai Dr NK Thingalaya
Canara Bank 1969 Mr. KPJ Prabhu Dr GV Sathyamurthy
Union Bank of India 1970 Mr. PF Gutta Mr MA Deshpande
Bank of Maharashtra 1971 MR CV Joag Mr AT Akolkar
Central Bank of India 1971 Mr CH Bhabha Mr KR Doodha
Vijaya Bank 1974 Mr Sundar Ram Shetty NA
Corporation Bank 1976 NA NA
Oriental Bank of Commerce 1977 NA NA
Andhra Bank 1979 NA Dr S Vasudeva Shetty
Source: Ballal Murari N and Damodar B.S. (1980), Economic Research in Banks

The key responsibilities of ERD were as follows:

  • Collection and assembling of data on current economic developemnts in India and internationally
  • Corporate planning particularly credit planning.
  • Work related to Lead Bank Scheme. ERD did economic surveys of the districts helping in better allocation of credit and branch expansion.
  • Field Surveys on various facets of banks’ operations
  • Finalise annual reports, notes for regional bankers etc
  • Preparation of speeches and articles for senior execs
  • Pure research work related to banking developments in the country.

Another paper in the book by Mr L D’Mello of SBI mentions that SBI’s Economic & Statistical Research Department was reorganised in three departments:

  •  Chief Economic Adviser’s Secretariat: CEA is expected to be a common man assisting the corporate management of the bank in economic policy formulation.
  • Economic Research Department: Scanning of economic environment with a view to help the bank in decision making. Also helps in annual reports, monthly review and so on
  • Area Planning and Special Studies Department: Preparation of district credit plans under Lead Bank scheme and regional plans

I don’t know whether there has been any follow-up research on how roles of bank economists have changed since 1980. This is especially interesting when we compare 1980s ERDs with ERDs today. Most of ERDs are involved in treasury work : forecasting macro variables, interest rates, RBI policy, Union Budget and so on. There is hardly anyone doing credit/branch planning. Much of this obviously changed post 1991 reforms when interest rates/exchange rates were deregulated. Bank economists were once again drawn to the new challenges of post deregulation world.

Will be interesting to track this history..


How India eradicated Polio?

July 6, 2021

Ayushi Kalyani in this Madras Courier article:

India’s battle against polio lasted over 66 years. The first research center to battle against polio was established in Mumbai in 1949. The vaccine was introduced in 1979. However, India faced unique challenges in eradicating polio.

In the mid-1980s, India reported two to four hundred thousand cases annually. Until the early 1990s, India was hyper-endemic for polio; an estimated 500 to 1000 children were paralysed every day from the disease. But India managed to eradicate polio completely. The last case was recorded in 2011.

How did India manage to eradicate polio? What lessons, if any, can we learn and apply in our fight against COVID-19?

30 Years of India’s Economic Reforms: Taking stock of banking sector

July 5, 2021

2021 marks 30 years of India’s economic reforms.

My article in Moneycontrol taking stock of India’s banking sector in the last 30 years.

A brief economic history of Swadeshi

July 5, 2021

Nitin Pai in the recent edition of Indian Public Policy Review traces history of Indian swadeshi movement:

This paper traces the history of the swadeshi idea from its origins to the present day, identifies its political trajectory, assesses its impact on the Indian economy and outlines how it could be interpreted in the context of an independent, liberal democratic republic. It shows that swadeshi has always been a political project cast in economic terms and its empirical track record is far less impressive than its exalted place in the popular narrative. It concludes by arguing that India’s national interest is better served by acquiring capability than self-reliance and most importantly, by embracing an open economy. 

Mumbai Samachar completes 200 years

July 2, 2021

Asia’s oldest existing newspaper Mumbai Samachar completes 200 years.

Asia’s oldest existing newspaper – “Mumbai Samachar” – where once Mahatma Gandhi, Jawaharlal Nehru and Sardar Vallabhbhai Patel used to drop in for tea and a chat, entered the 200th year of publication on Thursday.

It was started as a small bunch of pamphlets on July 1, 1822, by Parsi priest-cum-scholar, Fardunjee Murazban – considered the prioneer of Gujarati journalism – through the first Indian printing press which he launched in 1812.

Initially, Murazban brought out a Gujarati calendar in 1814 before jumping into media journalism in 1822 with the “Mumbai Samachar, 14-pages on three small quarto sheets and a half-sheet supplement in a 10 by 8 inch format.

While the first Asian newspaper was “Hicky’s Bengal Gazette” or the Original Calcutta General Advertiser, which came out from 1780, it folded up in 1782. “Samachar Darpan” the country’s first non-English newspaper, was published from May 23, 1818 from Hooghly, followed by the “Mumbai Samachar”.

“It catered to the thriving business community of the city and provided business-related news, death announcements, and especially shipping time-tables as all trade was conducted through the Bombay port,” its present-day owner-Director Hormusji N. Cama, told IANS in a free-wheeling chat.

More in Indian express, Times of India


The Achievements and Challenges of the Kerala ‘Model’

July 2, 2021

Prof Jayan Jose Thomas of IIT Delhi in this TheIndiaForum article:

The experience of Kerala ever since its formation in 1956 shows that, contrary to received wisdom, high public spending on social sectors improves people’s lives and also provides a positive thrust to economic growth.

Birth Centenary of PV Narasimha Rao | A look-back at his political and economic legacy

June 28, 2021

Today is birth centenary of India’ former PM PV Narasimha Rao.

My new article in Moneycontrol reflecting on his centenary.


30 years of India’s reforms: A podcast with key actors

June 23, 2021

Puja Mehra, author of Lost Decade has put up an interesting podcast on India’s reforms story.

It’s been 30 years since India opened up its economy, freeing it of the licence permit raj, improving access to capital, and introducing a New Industrial Policy. But what went on behind the scenes, and how have successive governments taken these reforms forward? In a series of seven conversations with economists, policymakers, thinkers and doers, Puja Mehra unpacks the story behind India’s reforms and finds out what’s likely to happen in the near future. This is a Mint production, brought to you by HT Smartcast.

The podcast features both, earlier and current architect of India’s reforms. Should be an interesting hear.


Macro News and Micro News: complements or substitutes?

June 21, 2021

Central banks as golden goose

June 18, 2021

In its monthly Bulletin, RBI econs have been writing on the State of Economy which has generated fair bit of discussion.

In the Jun-2021 edition, the researchers react to the recent RBI transfer of surplus to the government.

An aspect of the Annual Report that has raised considerable heat and dust in the media is the surplus transferred to the government. Mainly stemming from saving on balance sheet provisions and employees’ superannuation and other funds, the surplus constitutes just 0.44 per cent of GDP (which is taken as a measure of seigniorage).

“In flow terms, we can think of the central bank as the government’s golden goose. With an unimpaired balance sheet:

• The free-range goose conducting conservative monetary policy with a fair degree of independence produces golden eggs in the form of seigniorage worth 0.5 to 1 per cent of GDP;
• The battery farm goose, bred specially for intensive egg-laying, can produce golden eggs n the form of an inflation tax yielding 5 to 10 per cent of GDP;
• The force-fed goose can produce revenue of up to 25 per cent of GDP for a limited period before the inevitable demise of the goose and collapse of the economy. All three forms of central bank geese have been sighted in recent years.”

From the point of the surplus transfer alone, therefore, the Reserve Bank can be characterised as ‘free-ranging’ and conducting independent monetary policy, i.e., independent of fiscal dominance (Table 2).  


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