How the market was shaped by a visible hand – Raja Kesava Das – the dewan of the region:
Archive for the ‘Indian Economy/Financial Markets’ Category
Some commentators have invoked Section 7 (1) of RBI Act to suggest the RBI Board had no choice but to go ahead with the 8 Nov 2016 move.
Section 7 (1) says:
(1) The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.
Given one was trying to figure RBI Board History, I came across why this section came into being at the first place.
As argued earlier, RBI started as a shareholder bank with Board nomination coming from both Government and shareholders. However, while working towards RBI’s nationalisation the shareholder angle did not matter anymore. A Bill was prepared to amend RBI Act.
In the bill, on one of the points RBI Governor suggested that in case of differences between the two, the government should take responsibility for their action. However, Finance Ministry refused this and added what is now seen as Section 7 (1). From RBI’s First History Volume:
Despite one wanting to withdraw from Currency Withdrawal exercise, it continues to ask questions and remains exciting.
The role of RBI Board in the exercise which was a mystery in the early part of the debate (not for the readers of this blog ) has become a major issue now. There are comments on both side of the debate. Some suggest the role of RBI Board shows how RBI has lost its autonomy and others who suggest this is not the case. Then there were concerns raised about FSLRC’s suggestion on reducing the RBI Board strength which has not been commented by anybody.
As there is so much chaos, it is best to get back to genesis. How did RBI Board evolve?
The founder of Paytm actually says this in Paytm’s Annual Day party:
Interesting interview of Abhishek Lodha of Lodha Group which is building a greenfield city outside Mumbai – Palava
He says smart city is not just about technology:
McKinsey: What is a “smart city”?
Abhishek Lodha: A smart city is not just about technology. This misinterpretation has often led cities to make investments that are doomed to fail. Cities can be governed using technology but have to be designed with vision. I like to say that to make a place good to live, you need “CCTV” to work—citizens, community, technology, and vision. Probably because technology is more tangible than “community” or “vision,” people tend to grab it when they define a smart city.
When we started building Palava, we began with the classical definition. We used the notion of 5-10-15, which means everything you require daily should be within 5 minutes of walking, what you need every three to four days should be within a 10-minute walk, and things you use within a week to a month should be within a 15- to 20-minute walk.
When you start designing an entire city with this in mind, there are multiple benefits. Given our population, India can never build enough roads to solve our traffic problems. What we can do is design cities so you don’t need so many cars. It is also much healthier for people to walk more.
Interesting insights throughout the talk.
Wow. There is so much to learn and figure about monetary economics other than just inflation rates.
The Moneyness blog which has been a great source of education post 8 Nov 2016 has another post to think about. This one is on size of currency note. The blog says that India reducing size of the new Rs 500 and Rs 2000 note is in line with what practices elsewhere. He also points to this wonderful note which discusses various aspects of note design:
Though politics is important but one wants to keep it away given how polarised economics discussions have become nowadays. Given the huge event one is just interested in learning about alternate monetary arrangements taking shape in different societies/regions across India. These are the kind of developments which are kept distant from any monetary economics textbook, but are so important to understanding evolution of money.
This article by GS Radhakrishna tells you about how people are going back to barter system in a few places due to no cash:
In the days following the demonetisation of high-value banknotes on November 9, the Adivasis and rural poor of Andhra Pradesh and Telangana have fallen back on bartering to tide over the cash crunch. They exchange their goats, chicken, pigs, calves, buffalo, honey, tamarind, forest millets, jackfruit and gum for essential goods.
The immediate aftermath of the cash withdrawal caused a quandary for poor people in the border districts of Srikakulam, Vizianagaram and Visakhapatnam in Andhra Pradesh and Bhadrachalam, Khammam, Warangal, Adilabad, Bhoopalapalli, Kothagudem and Karimnagar in Telangana. Their employers continued to pay them in old notes, which the markets refused to accept, and new currency notes were not easy to come by.
Farmers and contractors said they had good sreason to pay wages in demonetised Rs 500 notes. “We did not get smaller notes ourselves and had only old notes,” said G Mallikarjuna Reddy, a landlord in Chintur in East Godavari district of Andhra Pradesh.
In this situation, help came from the Annalu, or elder brothers, as members of the Communist Party of India (Maoists) are known in these parts. The Annalu put pressure on traders to adopt the barter system, and used muscle power wherever they met with resistance.
This became explicit on November 22, a fortnight after demonetisation, when a poster on the wall of a residential school in Bayyaram, in Kothagudem district of Telangana, asked traders and farmers to accept forest produce from the people in exchange for essential goods. It was signed by Sagar, the spokesman for the North Telangana Special Committee of the Communist Party of India (Maoists).
The switch to a barter system was not limited to just the two southern states. In Chhattisgarh, for instance, petrol pumps on the highway from Bastar to Jabalpur are accepting payments in kind for fuel. Sahadev Ikshu, a farmer, said he had used tamarind to pay for petrol for his scooter. Other communities in the state are reportedly using honey, tamarind, Mahua liquor and forest fodder as currency.
All this is fascinating to read.
In some regions we are seeing digital payments rising in lieu of cash and in others we see reemergence of barter systems..
It is rare these times to read such an interview albeit of a former head of a bank.
There was a time when even banking heads appointed by the government had the courage to speak/criticise government and RBI decisions. You read banking histories of whichever bank and you come across quite a few of such stories of individuals standing up and expressing themselves even when appointed by government.
Now we have come to a time when even the heads of Private bank just agree whatever policy is made on banking. They all sing in similar tunes. See any budget or any monetary policy in last few years and you see most heads of private banks say the same thing. The same thing usually is: It is a good budget/policy and in line with our expectations. And this is not seen just in this government but even previous governments as well.
They don’t realise by singing in a chorus they create more damage than good. By agreeing to whatever policies they may prevent immediate attention but create a long term damage.
Take the recent currency withdrawal case.
This blog has earlier posted on how most of economics advisory (should have added journalism as well) has become polarised and politicised. It is all about which political party one is siding with. Any article boils down to are you with the opposition or the ruling party?
One just came across this ET article which says critics of RBI losing autonomy have an axe to grind:
Today is truly a RBI Board day on this blog.
Thanks to Prof Jayant Varma’s post, one went back to SEBI Board. While looking at whether RBI Board can disclose more information of its meetings. one need go very far. SEBI provides a template to show this can indeed happen and even shows the way forward.
Interestingly, SEBI’s Board has been following different practices compared to the RBI Board.
One report which was supposed to overhaul India’s financial sector was – Financial Sector Legislative Reforms Commission. One does not know the status of the report as there is lots of confusion around its status.
Though, parts of the report have gained traction and policy attention like those on setting an inflation target and constituting an MPC.
Given the attention on the Central Board of Central Bank, one was curious what does FSLRC say on the Board?
Part II of the report (page 16) looks at RBI Board. It said the Board should not have more than 12 members which is less than current prescription of 21 members:
The storm is clearly brewing now.
It has taken a while for followers of India’s macroeconomy to realise the importance of RBI Board. While they were busy singing praises for how the newly constituted MPC will change India’s central banking forever, finally it was the oldest RBI Board which took (or asked to take) one of the most important decisions in India’s monetary history. We should have asked for disclosure of RBI Board minutes (where all action is) than just MPC minutes (which are a drag anyways).
Ila Patnaik adds to the brew:
Tamal Bandyopadhyay brings notes from a diary of a bank branch manager in Mumbai:
This 33-year old banker works for a private bank in Mumbai and heads a relatively new and small branch. For privacy, I am neither naming the banker, nor his bank. Every character and incident mentioned in this diary is true.
Back from a four-day holiday in the first week of January at Matheran, a hill resort in Maharashtra, with his three-year old daughter and wife, this man looks back at those 50 days as something surreal.
Edited extracts from his diary:
One just does not know how will all this hopelessness end. After going back on their promise that a citizen can exchange old notes even after Dec 30, the window was kept open only for those citizens who could prove they were away during the period (8 Nov t 30 Dec) and NRI/PIOs.
Now, it seems even latter are unable to exchange old notes as conditions are way too stringent:
After residents, NRIs and People of India Origin (PIO) are now braving long queues to exchange the old Rs 500/1000 notes at 5 designated RBI branches across the country but because of stringent conditions several of them have had to return disappointed. Tempers ran high outside the central bank branches as people coming from long distances were denied entry by guards on the grounds that they were not carrying the requisite documents.
Many NRIs complained that they are not allowed to speak to officials who could at least listen to their grievances. “Though I have foreign passport, I still have roots in India. Our family comes to India every year. We have few Indian currency notes and we want to exchange them but we are not allowed to enter RBI. Mr Prime Minister are we supposed to burn Indian currency that we have?,” said Ritu Diwan, an agitated US national.
This unnecessary harassment simply indicates that PIOs are no more welcome to the country of their birth, she added. Dharamveer, another US national, said PIOs generally keep some amount of Indian currency as they frequently visit India because there is no point in paying commission on exchange of currency on each visit.
“Any PIO who regularly visits India would easily have Rs 50,000 to Rs 1 lakh worth of Indian currency and I challenge the government to prove this as black money and forfeit this from us”, he said, adding that “this money, we don’t spent in the country where we live but country of our origin”.
“It is by chance that we are here at this time and wanted to exchange few currency but we are not allowed to do so. It is very frustrating,” he added. Many PIOs who were turned away protested that they don’t have crores of rupees but only few thousands which the administration should exchange. Frustrated at the “high-handedness of RBI” and the “government policy”, there are reports of NRIs throwing defunct Indian currency at the gate of RBI as a mark of protest.
Wow. Getting better and better…
Digital transactions are not cheap as we are increasingly realising. Unlike cash which does not involve any transaction cost while paying digital payments require a fee. These payment services are offered by a private firm which has to earn its revenues. So someone has to pay.
People in Hubbali in Karnataka just figured this bit. In order to avail Rs 5 discount on booking a gas cylinder when paid digitially, they ended up paying more via commissions!:
The more you read and follow, the more you realise how much of economics training is just so narrow. It hardly tells you anything about the society at all.
Thanks to the ongoing Pravasi Bharatiya Diwas in Bangalore one came across this group of migrants from India- Girmitiyas (pardon this blog’s ignorance). They were not migrants per se but forced labor from India taken onto further British interests in their other colonies of Fiji, Mauritius, Caribbean and so on.
Girmitiyas’ (indentured labourers), the name given to generations of Indians, who were forced to leave the country in the middle and late 19th century to serve as laborers in the then British colonies where they eventually settled down for more than a century. Girmit is a corrupt form of the English word ‘agreement’; an agreement under which thousands of laborers used to emigrate, a labour so emigrating under Girmit is a Girmitia. The word ‘Girmitia’ was coined by Father of the Nation, Mahatma Gandhi, who called himself ‘Pehla Girmitia’ (first Girmitia), as a recognition of his fight for the cause of the community.
Migration of unskilled manual workers from Bihar and other parts of India is not a new phenomenon. It began in the middle of the 19th century, when they left for Mauritius, Fiji, Suriname, Guyana, the Caribbean Islands and other distant lands during the British Raj as indentured labourers. Years of toiling by these people in their adopted countries has transformed barren lands into the mines of golden crops, bringing prosperity and abundance for themselves, fellow African labourers and the natives.
Most of them ended up leading lives of unmitigated hardship and abject penury. But some fought against all odds to not only to survive, but also to pave the way for a better future for their descendants. They embraced the local culture and assimilated themselves totally in the alien lands. In fact, some of their descendants went on to become the heads of the governments in those countries, underlining the triumph of human spirit over all impediments.
One just partly knew all this but did not understand the linkages and details.
It was also fascinating to read about how this diaspora is keeping traditions alive by singing geet gawai – songs in bhojpuri:
Geet Gawai, a musical ensemble that encapsulates the cultural heritage in the Girmitiya nations (to which indentured labourers were brought from India’s Bhojpuri belt by the British two centuries ago) was recognized by UNESCOas “The Intangible Cultural Heritage of Humanity” last December.
Geet Gawai came to Mauritius when the first batch of indentured labourers arrived at its capital city Port Louis in 1834 and has been orally passed down through generations. The Indian diaspora emphasized the need for making Geet Gawai a recognized cultural expression and worked towards it. One such Mauritian who was instrumental in getting the “intangible heritage” tag for Geet Gawai was Sarita Boodhoo, the chairperson of Mauritius Bhojpuri speaking union and head of Global Woman Council of GOPIO.
Amazing to read all this.
These migratory forces are so so crucial to understand economics not just from a historical perspective but to understand issues until today. But these matters are termed as soft and not discussed in mainstream economics at all. How people migrate (forcefully or intentionally) from one place to the other in search of better livelihood or economic opportunities. Then how they bring their own traditions and mix with their new place. Sometimes this mixing becomes positive and other times negative. These outcomes eventually matter for development. If we look at it, this is all there is to economic development after all..