India and COP-26 Commitments: Challenges for the Mining sector

V. Dhanya, Gautam and Arjit Shivhare in RBI Bulletin for May-23 :

In COP26-Glasgow, India made a commitment to meet 50 per cent of its energy requirement with renewable energy by 2030 and to achieve net-zero emission by 2070. In this context, this paper examines India’s future path to energy security and its impact on the mining sector.

Highlights:

• • India has made significant strides in renewable installed capacity and its share in total installed capacity is at 41.3 per cent (including large hydro) in March 2023. Investment in renewable energy has also more than doubled in 2021-22.
  • With the move towards clean energy, the mining sector is likely to see a gradual shift from coal to other essential minerals required for production of renewable energy.
  • India’s share in global reserve of critical minerals such as cobalt, nickel, and graphite are low. Present clean energy technologies are mineral intensive, the supply of which is concentrated in a few countries. Global coordination and technological innovations for reducing mineral requirements in producing renewable energy would play a major role in achieving a cost-effective sustainable energy transition.

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RBI must adopt well-defined and time-bound guidelines on replacing soiled notes

My piece in moneycontrol on RBI’s decision to withdraw the Rs 2000 note.

Review of Total Expense Ratio charged by India’s Mutual Funds

SEBI has released a comprehensive report computing Total Expense Ratio (TER) of India’s Mututal Funds. It has also suggested a roadmap to lower  TER of the funds.

Ujjal Das of Valuresearch online helps understand the main ideas of the report. In nut shell, TER will come down across MFs which shoukd translate to higher returns for investors.

 

The Political Necessity of the Licence-Permit Raj

Prof Rashmi Venkatesan of National Law School of India University in this article at TheIndiaForum:

In contemporary popular imagination, the ‘license-permit-quota raj’ symbolises everything wrong with state regulation and intervention in ‘socialist’ India. Many, like Arvind Panagriya, an economist and former boss of the NITI Ayog, have linked it to the country’s “meagre progress for almost four decades” and dismiss it as as bad economics based on socialism.

While the logic of market reforms is repeated often to justify the disbandment of licencing in the wake of the 1991 reforms, much of the commentary overlooks the rationale and history of licencing. Industrial licencing emerged out of the nationalist discourse on development, and was one of the key instruments in establishing and legitimising the sovereignty of the post-colonial Indian state. It was not initiated to give effect to any one coherent political ideology, but rather, to consolidate the eminent domain of the state in matters of industrial governance so that the state could pursue any political and economic goal it identified.

Fundamentally a political project, industrial licencing cannot be analysed only in economic terms. It must be contextualised in the wider political and legal imagination of a post-colonial India.

 

India’s Regulatory Shift: An Examination of Five Agencies of the Post- Liberalisation Era

Arkaja Singh of CPR analyses design of regulatory agencies in India:

This paper explores the design of Indian regulatory agencies established post-liberalisation from an administrative perspective. Regulatory agencies were set up to replace state inefficiencies, and to discipline profligate state agencies, even as much as they were a response to state-market reorganisations and the challenge of privatization. Regulation provided an opportunity for upper levels of the Indian bureaucratic state to recast their power, with the idea that it would provide a framework for economic rationality, independence and technical specialization to take centre-stage.

In actual practice however, the design of each of the regulatory agencies is shaped largely by pre-existing legal frameworks and institutions, and the agencies have remained quite tied in with their counterpart departments and on retired bureaucrats.

However, in spite of these limitations, these agencies have some common features imbued by legislative mandate and organisational design which are unique in the context of the Indian state.

They have focus and stability, a degree of functional independence, and most importantly, a concentration of power, which enables them to think through and implement complex policy transitions from multi-year and context-specific perspectives. The paper builds on learnings from a series of conversations with regulatory agency chairpersons in order to identify what regulatory governance is, in terms of the powers and mandate of the regulatory agencies and what makes them distinctive from the rest of public administration.

The five agencies are:

• the Central Electricity Regulatory Commission,
• the Pension Funds Regulatory and Development Authority,
• the Maharashtra Water Resources Regulatory Authority,
• the Food Safety Standards Authority of India, and
• the Real Estate Regulatory Authorities. 

ONDC has made a promising start. But, it could learn from ‘Market Design’

My new piece in moneycontrol on ONDC (Open Network Digital Commerce).

I draw lessons from market design on making the network more robust and sustainable.

RBI Report on Currency and Finance 2022-23: Towards a Greener Cleaner India

RBI’s Currency and Finance Report is one of its kind.  The report is based on a theme (usually timely) and is a very interesting read on the theme. This time it is on green economy.

• The Report covers four major dimensions of climate change to assess future challenges to sustainable high growth in India, namely, the unprecedented scale and pace of climate change; its macroeconomic effects; implications for financial stability; and policy options to mitigate climate risks.
• India has embarked on a targeted and time-bound climate action plan to reduce carbon emissions and currently ranks the best amongst G-20 countries as per the Climate Change Performance Index, 2023.
• India’s goal of achieving the net zero target by 2070 would require an accelerated reduction in the energy intensity of GDP by around 5 per cent annually and a significant improvement in its energy-mix in favour of renewables to around 80 per cent by 2070-71.
• India’s green financing requirement is estimated to be at least 2.5 per cent of GDP annually till 2030.
• A balanced policy intervention with progress ensured across all policy levers will enable India to achieve its green transition targets by 2030, making the net zero goal by 2070 attainable.

 

Traditional Institutions in Modern Times: Dowries as Pensions When Sons Migrate

Natalie Bau, Gaurav Khanna, Corinne Low & Alessandra Voena in this new NBER research:

This paper examines whether an important cultural institution in India – dowry – can enable male migration by increasing the liquidity available to young men after marriage. We hypothesize that one cost of migration is the disruption of traditional elderly support structures, where sons live near their parents and care for them in their old age. Dowry can attenuate this cost by providing sons and parents with a liquid transfer that eases constraints on income sharing.

To test this hypothesis, we collect two novel datasets on property rights over dowry among migrants and among families of migrants. Net transfers of dowry to a man’s parents are common but far from universal. Consistent with using dowry for income sharing, transfers occur more when sons migrate, especially when they work in higher-earning occupations. Nationally representative data confirms that migration rates are higher in areas with stronger historical dowry traditions.

Finally, exploiting a large-scale highway construction program, we show that men from areas with stronger dowry traditions have a higher migration response to reduced migration costs. Despite its potentially adverse consequences, dowry may play a role in facilitating migration and therefore, economic development.

Lessons for the RBI from the US review of its 2023 bank failures

In response to the criticism of the 2023 banking crisis, the two regulators, the Federal Reserve and the FDIC decided to release detailed supervisory reports of the failed banks under their supervision.

Last week the Fed released its report on SVB while the FDIC released one on Signature Bank.

My piece in moneycontrol on lessons RBI could learn from the reports.

Unleashing India’s Growth Potential

New IMF working paper by Shinya Kotera and TengTeng Xu:

This paper aims to analyze the drivers of India’s growth and potential growth. There are three main objectives. First, this paper examines the role of labor, capital, human capital, and TFP in explaining India’s growth in the past 50 years and draws a comparison with other fast-growing economies. Second, this paper estimates the impact of the pandemic on potential growth, and projects potential growth in the medium term, accounting for the impact of the pandemic through different channels. Third, this paper considers both baseline and upside scenarios of mediumterm potential growth. In the upside scenario, structural reforms play an important supporting role to unleash India’s growth potential.

Which factors have led to growth over 50 years:

…paper shows that India’s growth was mainly driven by labor in the 1970s and 80s. Capital was the key driver in the 90s and 2000s, with TFP growth picking up in the past decade or so before the recent growth slowdown. Overall, India has made important progress in accumulating productive physical capital over the past few decades, which has been crucial in supporting its economic growth and transformation. This paper finds that while the pandemic could lead to some medium-term adverse impact on potential growth, a successful implementation of structural reforms could more than offset the impact of the pandemic and provide support to potential growth over the medium term.

Forum For State Studies: a new initiative to understand Union-State fiscal relations

Forum For State Studies is a new initiative to understand Union-State fiscal relations (HT: Niranjan Rajadhyaksha). Forum’s patron is DR YV Reddy and it has group of economists, legal experts, former central and commercial bankers, and former bureaucrats.

It has interesting articles on Union-State relationships and matters pertaining to public finance (nad much more). There is also a digital repository of important committees, debates and so on that have shaped the relationship.

 

Recent Regime Reversal in Inflation: The Indian Experience

Michael Debabrata Patra, Joice John and Asish Thomas George in this RBI Bulletin (Apr-23) article examines recent regime shifts in inflation in India.

• Since the second half of 2022-23, the Indian economy is showing signs of transiting to a low inflation regime, as indicated by a decline in inflation persistence, softening of its underlying trend, reduction in broad-basing and a fall in the contribution of imported inflation.
• The contribution of cyclically sensitive inflation emanating from categories such as household goods and services, education and housing is picking up in the recent period. Hence, monetary policy has to be in readiness to act pre-emptively to ensure that inflation weathers demand pull and is guided to the target.

The Great Indian Poverty Debate

There was a time that debates on Indian poverty were endless. Then they disappeared as govt stopped publishing certain data and abolished planning commission.

Recently, the debates on Indian poverty have again stirred.

My explainer in moneycontrol on the history, present and future of the Great Indian poverty debate.

Reading Consumers’ Minds: An Analysis of Inflation Expectations

Purnima Shaw of RBI in this working paper:

The heterogeneity in the consumption baskets of households is often deemed responsible for the deviation of households’ inflation expectations from the headline inflation number. A novel approach is proposed in this paper to verify this by simulating heterogeneous population consumption baskets and estimating the mean inflation by sampling the baskets. The estimated mean inflation using a random approach fails to display closeness with the survey numbers. Therefore, the paper proposes alternative logical methods for designing basket compositions and identifies the most suited method using which the estimated expectations are found to be close to and well-correlated with the survey numbers.

The findings suggest that a sudden rise in inflation in items of regular use can explain the deviation in households’ inflation expectations from the official inflation figures. The deviation of survey expectations from the headline inflation can, thus, be explained effectively over and above the other factors viz., demographic characteristics and exposure to media reports, which influence the formation of inflation expectations. This attempt to identify the source(s) of disagreement in inflation expectations with respect to the official inflation can help in understanding consumers’ inflationary expectations better for use in inflation analysis.

Indian business today needs leaders like Keshub Mahindra

My oped in deccan herald. I reflect on the legacy left behind by leaders such as Keshub Mahindra. These leaders have left really big shoes to fill.

Remembering BR Ambedkar as a monetary economist: 100 years of his ‘The Problem of the Rupee: Its Origin and Solution’

14th April marks Dr Ambedkar’s birthday. The year 2023 also marks centenary of his work: ‘The Problem of the Rupee: Its Origin and Solution’

Prof Sashi Sivramkrishna discusses Ambedkar’s work on his birthday:

• In early 19th century under colonial rule, the rupee was essenally a minted piece ofsilver metal of 92 percent purity.
• Britain was on gold standard while other major economies followed silver, keeping a stable fixed exchange rate between the two metals
• Countries began to abandon silver after mid-nineteenth century, causing a sharp depreciation of the silver rupee versus other currencies without balance of paymentsissue
• Gold exchange standard was adopted, which Ambedkar later in his book criticized andargued that it prevented citizens from minting silver to coins but not the government.
• Ambedkar’s views as an economist left  little space for fiscal deficits and more generally, fiscal policy . 

 

New Logo of SEBI unveiled on the occasion of SEBI Foundation Day

SEBI was estalished on 12 April 1988. On its 35th foundation day, it introduced a new logo:

Unveiling the logo, SEBI Chairperson, Ms. Madhabi Puri Buch said “SEBI’s new logo seeks to reflect the unique combination of rich traditions of SEBI and new data and technology based approach to all the three areas of its mandate in the securities market – Development and Regulation of the Securities Market and Investor Protection.

….

The new logo of SEBI reflects the continuing commitment of SEBI to being a facilitator in the growth of the economy through capital formation and retaining its rich tradition of a consultative approach in policy making while adopting the power of data and technology. The new SEBI logo retains its traditional blue colour palette while also reflecting the aspiration of a new and modern nation that works for the prosperity of every Indian.

Impact of Foreign Direct Investment on Profitability: Evidence from the Indian Corporate Sector

New RBI paper by Haridwar Yadav, Vishal Shinde and Samir Kumar Das:

The paper empirically assesses the impact of foreign direct investment (FDI) on the capital structure and profitability of Indian companies. Using a multivariate GMM panel regression model and a novel panel data set constructed by taking data from RBI releases on FDI companies along with data on company financials from the Prowess database from 2013-14 to 2018-19, the paper finds that an increase in the share of FDI in equity raises profitability of the FDI-receiving companies. The FDI also influences the capital structure of the company by bringing down leverage. The age and size of a company may also determine profitability, i.e., older and smaller companies are likely to be less profitable.

RBI’s Monetary Policy Apr 2023 | Unexpected pause, but it’s far from boring

My piece (edited the link; thanks Prakash) in Deccan Herald on the first bi-monthly Monetary Policy for the year 2023-24 which happened yesterday.

Stacking up the Benefits: Lessons from India’s Digital Journey

Team of IMF economists (Cristian Alonso, Tanuj Bhojwani, Emine Hanedar, Dinar Prihardini, Gerardo Uña, Kateryna Zhabska) in this new working paper draw lessons from Indiastack:

Foundational digital public infrastructure (DPI), consisting of unique digital identification, payments system and data exchange layer has the potential to support the transformation of the economy and support inclusive growth. India’s foundational DPI, called India Stack, has been harnessed to foster innovation and competition, expand markets, close gaps in financial inclusion, boost government revenue collection and improve public expenditure efficiency. India’s journey in developing a world-class DPI highlights powerful lessons for other countries embarking on their own digital transformation, in particular a design approach that focuses on shared building blocks and supporting innovation across the ecosystem.