Archive for the ‘Indian Economy/Financial Markets’ Category

The truth about the Indian economy…

September 19, 2017

The GoldStandard blog by Anantha Nageshwaran has 4 posts on truth/state of Indian economy. In the process, he links to several articles/pieces on Indian economy (which is also the trademark of his blog).


What is also interesting to note is how quickly the narrative changes. All this while, we were saying things are stable in Indian economy and so on. Demon is a blip. GST is a blip etc etc.

Now, one is reading quite a few pieces on the need to pass fiscal stimulus to shore Indian economy! For instance see this, this and this. Once the government bites the fiscal bullet and things go haywire (as they usually do with most governments), the same articles will start criticising the Government! Some will say eased too much, some will say too soon and some will suggest that instead of easing this component, that component should have eased..

So much so for all the macro analysis which keeps going in circles….


Does caste discrimination lead to lower rural lending?

September 18, 2017

Interesting paper by  Sunil Mitra Kumar  (King’s College London) and Ragupathy Venkatachalam  of University of London.

They say caste discrimination does not play as big a role in bank lending (based on their data set):

In recent research, we examine the role of caste in rural bank lending (Kumar and Venkatachalam 2016). We are especially interested in examining whether banks discriminate on the basis of caste, and in understanding potential mechanisms behind any caste-based patterns in access to loans. Through these questions, we indirectly address a larger question concerning the effectiveness of affirmative action policies in the financial sector. In a departure from the literature on this issue, we study both the decision to apply for a bank loan, as well as whether that application is subsequently approved by the bank. In brief, we find that access to bank loans is stratified by caste, but that the major proportion of these differences is due to differences in loan application rates. However, we do find evidence of some discrimination against borrowers belonging to Scheduled Tribes (ST) when it comes to loan approvals.


Our finding that there is little discrimination – and none against SCs – is quite positive, even though the 5-7% lower approval rates for STs likely due to taste-based discrimination are a cause for some concern. But our finding that loan application rates differ significantly across caste groups in a way that mirrors their disadvantage is less positive. While we cannot say for sure, it suggests that historical disadvantage and possibly discrimination are still at play in shaping people’s expectations. It is possible that farmers who do not apply to banks find their credit from informal sources, but this is not encouraging either because such sources offer credit at very high rates. That said, a further set of results in the paper confirm that small farmers – those who own less than five acres of land and whom the RBI encourages lending to – have smaller inter-caste differences in application rates. This too is a positive finding because it suggests that this encouragement has trickled down to the level of expectations too, and has muted caste-based differences in application rates as a result. Caste and credit is not such a woeful tale per se, but more remains to be done. 

These studies can hardly be generalized. An experiment in a different setting could show the opposite results..

Should Indian equity markets extend trading hours?

September 15, 2017

The talks have started again. In 2007 or so at the peak of the global financial cycle there were suggestions to extend market hours as one needed to keep upto global finance.

Once again stock exchanges have asked to extend trading hours till 7.30 PM:


Impact of Indira canteen: Darshinis increase quantity of rice-idli-sambar but Indira canteens rethinking on the composition..

September 11, 2017

Competition is important.

Did now know or notice that Bangalore Darshinis have increased their quantity of offerings following launch of Indira canteens:


GST blues: No GST on sitar, but tax string on guitar…

September 11, 2017

GST has led to gains for some and losses for some. It will take a while for things to settle down.

So, this bit is interesting. In a recent meeting, the GST council exempted the Sitar from taxes on account of being indigenous musical instrument. However, the foreign guitar saw no such luck. Same for indigenous dhol vs. foreign drums. Taxation is seen one of the reasons for innovations. So perhaps the time has come to make a guitar which looks like a sitar:


Why don’t we look at lessons from Indian banking history while resolving current NPA crisis..

September 8, 2017

It was interesting to read RBI DG’s speech on Indian banking NPA crisis. He starts pointing to the scale of the problem and then looks at examples of banking crisis in Japan (1990s)  and Europe (recently).

In the end, he asks several qs in words of William Wordsworth:


Has Reserve Bank of India got its exchange rate strategy wrong?

September 7, 2017

There are again questions over what India should do with Rupee. Should its allow Rupee to appreciate or depreciate?

Niranjan takes you through many such questions:


Why aren’t questions asked to RBI Board over demonetisation?

September 7, 2017

There is a lot of blame game since the RBI Annual report 2016-17 was released. Much of the criticism is directed towards the Government as basically it was their decision.

However, the story is not entire clear here as basically the Government says RBI Board gave them the advisery to do so. There are a lot of questions and clarifications over RBI Board’s role in demonetisation. Now one may agree or disagree with their specific role but one can’t get away saying that the Board had no role to play. Unlike previous two demonetisations where RBI Governor said no, so the Board was not involved and the decision was made by government under closed doors. So the entire thing rested with the Government.

This time around this is not the story as RBI Board was involved. The former Governor in his recent statements said that RBI was not involved in demonetisation under his term, so something must have happened in the two months to convince RBI to agree to the decision.


Indian income inequality 1922-2014: From British Raj to Billionaire Raj…

September 6, 2017

Lucas Chancel and Thomas Piketty analyse the trends in this paper (HT:CafeEconomics).

Not surprisingly, the share of national income held by 1% is the highest since 1922:


Business history of emerging markets should be seen as an alternative rather than merely adding new settings…

September 4, 2017

Nice and important paper by Profs. Gareth Austin, Carlos Dávila, and Geoffrey Jones.

It is fashionable to present economic and business history research of non-developed world very superficially. Moreover, it is just seen as complimenting the history of the developed world despite some very different contexts in the two sets of countries. Infact, the developed world differentiates its country-specific research but sums all non-developed world experience as emerging markets or some other term.

But this is not how it should be:


An ode to India’s Demonetisation…

September 1, 2017

Written by yours’ truly:

On the night of 8 November,
Just after the Diwali splendour,
The Indian Government in one stroke,
Decided that notes of Rupees 500 and 1000 were valid no more.

For their decision they gave us many a reason,
Black money, terrorism, counterfeiting and above all corruption,
This simple looking piece of paper was the devil,
And removing it will rid society of many an evil.

What was initially thought of as a joke,
Soon became a huge choke,
These notes were held by one and all,
And they were worthless after all.

What followed was huge chaos,
With authorities offering no pathos,
People just had no clue,
All they could do was find a shorter bank queue.

Central Bank was the key brain,
Their Board anticipating future gains approved the pain,
Though with their continuous change of many rules,
Bankers and people looked more like fools.

Just like most economic matters,
The move left economists in tatters,
Some called it an absolute disaster,
Whereas some others termed it a blockbuster!

As the economic data rolled by,
Some showed a decline whereas others showed a rise,
The final word was with the Central Bank,
Which kept us waiting in the dark.

Finally on an August evening,
Central Bank released its much anticipated annual account(ing),
It revealed nearly 99% demonetised notes are back in the system,
Making most ask what was the point of all this mayhem?

The Government though thinks differently,
Appreciates the central bank for all its efficiency,
The stated goals have all been forgotten,
The goal was always aadharisation and digitization.

This exercise made one think,
Power of the State is such a thing,
It decides the value of its own rupee one night,
And makes them valueless in the hands of others the next night.






Is this the first time in 2015-16 that Household financial savings are higher than Household Physical Savings?

August 31, 2017

There have been some comments over this RBI Annual Report table which indicates household financial savings being higher than physical savings. The idea is that thanks to several government measures we are seeing people moving towards financial savings over physical savings.

One just dug out the savings data from 1950-51 onwards and we see quite a few times this has happened. I have highlighted those years in Red. First time we see fin savings higher than physical ones is 1981-82 which continues till 1986-87 barring one year in the middle. Then we see from 1991-92 to 1998-99. Then there is just one year in 207-08 where this happens on the hype of 9% growth. Will have to figure the reasons for other years.

Year Financial Savings Physical Savings
1950-51 0.6 6.2
1951-52 0.1 6.2
1952-53 0.7 6.2
1953-54 1.4 5.3
1954-55 2.8 4.9
1955-56 4.3 6.1
1956-57 3.3 8.9
1957-58 2.9 7.4
1958-59 3.6 6.2
1959-60 4.3 8.3
1960-61 4.6 7.7
1961-62 4.9 7.5
1962-63 5.0 10.2
1963-64 7.4 8.5
1964-65 7.1 11.8
1965-66 10.7 15.2
1966-67 8.6 23.0
1967-68 8.7 24.1
1968-69 8.0 24.8
1969-70 9.2 34.6
1970-71 13.7 31.6
1971-72 15.6 36.7
1972-73 21.3 32.0
1973-74 36.1 44.1
1974-75 23.7 63.0
1975-76 39.2 58.7
1976-77 48.5 63.5
1977-78 58.5 78.3
1978-79 66.6 98.2
1979-80 60.8 102.6
1980-81 86.1 95.1
1981-82    96.1 94.0
1982-83    127.4 92.3
1983-84 132.9 136.6
1984-85    178.8 149.2
1985-86    185.4 181.3
1986-87    233.4 187.8
1987-88 268.2 304.8
1988-89 271.8 398.8
1989-90 380.0 449.9
1990-91 496.4 589.6
1991-92    621.0 435.3
1992-93    653.7 625.8
1993-94    947.4 567.2
1994-95    1207.3 664.1
1995-96    1057.2 928.7
1996-97    1416.6 829.9
1997-98    1467.8 1373.5
1998-99    1803.5 1717.7
1999-00 2066.0 2322.5
2000-01 2152.2 2485.3
2001-02 2474.8 2978.1
2002-03 2532.6 3109.1
2003-04 3132.6 3443.3
2004-05 3279.6 4357.3
2005-06 4383.3 4306.6
2006-07 4842.6 5101.4
2007-08    5802.1 5381.4
2008-09 5710.3 7598.5
2009-10 7747.5 8560.5
2010-11 7738.6 10263.2
2011-12 6322.0 14225.4
2012-13 7171.3 14952.8

Infact RBI Annual report table is for 2015-16 which have already been given earlier. It is not really new data:

From 2011-12, it has changed the style of reporting this data. It looks like as shown in the RBI Annual Report table. The figures are:

Gross financial saving Less financial liabilities Saving in physical assets Saving in the form of gold & silver ornaments
2011-12 9327.29 2901.2 13893.22 336.35
2012-13 10640.41 3304.25 14650.13 366.5
2013-14 11907.7 3586.79 14164.28 367.82
2014-15 12826.33 3633.85 15908.74 455.62
2015-16 15142.07 4317.55 14951.5 439.3

Infact if we add Gold and Silver to Physical Savings, the share of Physical Savings remains higher than Financial savings even in 2015-16.

We have seen in the past that if overall global financial environment goes for a toss, people switch back to physical savings. What will happen this time around is there to be seen…

How high is RBI’s expenditure on printing of notes in 2016-17?

August 31, 2017

When RBI announced that surplus transferred to government is Rs 30659 Cr less than Rs 65876 cr, all hopes of a government bonanza from demon were dashed. But back then we knew one major item which would have led to this decline is cost of printing notes which was expected to rise given the scale of remonetisation.

Y’day Annual report released the income and expenditure figures:


Result of Demonetisation 2016: Vindicates stance of CD Deshmukh and IG Patel who said no to demonetisation as RBI chiefs in 1946 and 1978..

August 30, 2017

We usually say in monetary economics (and even in other branches of economics), read history carefully. More often than not what was said previously remains true until today.

So when Government in accordance with RBI Board announced to demonetise the Rs 500 and Rs 1000 notes, this blog just dug some history. In this post it pointed to statements of RBI Governors who refused to demonetise currencies during their regime in 1946  and 1978. This led Governments then to use the ordinance route.

CD Deshmukh in 1946 said:


Year 2017 is the 10th anniversary of Report on Making Mumbai as International Financial Centre : What a cruel reality check…

August 30, 2017

As Mumbai goes through another deluge and crisis, you begin to wonder how superficial nature of our urban development. The maximum city does not even have minimum facilities in place.

It is not just Mumbai but we have had this water logging problem in most cities this season. We had floods this year in Ahmedabad, Bangalore and many more regions. And of course there was Chennai too in 2015 (though Chennai went to another extreme of water shortage soon thereafter). More summary here.

One sticks to Mumbai in this post given the coverage.

It is a really cruelty check as this year of 2017 marks the 10th anniversary of much hyped and debated Report on Making Mumbai as International Financial Centre. There was this whole feeling around 2005-07 just before the crisis, that India is not doing enough to attract global finance. This led to multiple reports around the time each one asking India to be more open on global finance from its own angle.

This specific report looked at how Mumbai could become an international financial centre and compete with others in the business like New York, London etc.  After all the committee was formed as then Finance Minister in his 2005-06 budget speech said:


70 years of Indian independence: How banks migrated during Partition?

August 27, 2017

My new piece published in Mint today.

It is quite humbling to figure financial and business history during the highly tragic period. How people managed to move their businesses and banks from one country to another with all the political and human turmoil must have been quite something. But it has been barely studied.  This is just a small step towards what is really an ocean of things to figure and understand.

Comments and suggestions are welcome.

Learning Game theory the Sholay way…(are happy endings just Nash Equilibrium audience likes to see?)

August 22, 2017

What started as a series of Tweets has become a very interesting Mint column today.

Avinash Tripathi explains game theory basics using one of the iconic scenes of iconic movie Sholay:


The policymakers also join the deflation chorus in India..

August 22, 2017

The deflation chorus keeps coming in India. A drop in inflation is termed as deflationary by media every now and then. Former ECB member Lorenzo Bini Smaghi had earlier warned that one should use the two D words – deflation and depression with caution. The reason is that both suggest really difficult times for both economy and policy. However, we seem to be using the word deflation with little caution.

For instance, this time around even Economic Survey says India suffers from deflationary impulses atleast in short term:

Optimism about the medium term and gathering anxiety about near-term deflationary impulses simultaneously reign over the Indian economy. Optimism stems from the launch of the historic Goods and Services Tax (GST), the decision in principle to privatize Air India; actions to address the Twin Balance Sheet (TBS) challenge; and growing confidence that macro-economic stability has become entrenched. Optimism, even exuberance,
is manifested in financial markets’ high and rising valuations of bonds, and especially stocks. At the same time, anxiety reigns because a series of deflationary impulses are weighing on an economy yet to gather its full momentum and still away from its potential. These include: stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they will entail; and declining profitability in the power
and telecommunication sectors, further exacerbating the TBS problem. For the year ahead, the structural reform agenda will be one of implementing actual and promised actions— GST, Air-India, and critically the TBS. The macro-economic challenge will be to counter the deflationary impulses through key monetary, fiscal, and agricultural policies. The opportunities created by the “sweet spot” that recent Economic Surveys have highlighted
must be seized and not allowed to recede.

Even in RBI MPC Minutes, both Governor and Deputy Governor mention deflation in food prices:

Statement by Dr. Viral V. Acharya

Inflation prints since the last policy have turned out even lower, though there are emerging signs that certain deflating food items are on a price rebound. 

Statement by Dr. Urjit R. Patel

…….An assessment of whether the recent deflation in food items is sustainable, despite a normal monsoon, would require more hard data going forward.

There is always this confusion when the term deflation is mentioned. What people perhaps mean is disinflation but they end up calling it deflation.

Robert Ophele, then Deputy GOvernor of Banque de France clarified:

Inflation refers to a sustained increase in the general price level in an economy. It is not an instantaneous shock limited to the prices of certain goods. It is a persistent and general process. Inflation is fuelled by expectations – when workers and companies expect prices to rise, they adjust upwards their prices and wages accordingly.

Conversely, deflation is a sustained decrease in the general price level in an economy. If only certain prices fall, it is not deflation. For example, the price of laptop computers or hi-fi equipment may decrease due to technological progress, but this is not deflation.

Disinflation is a reduction in the rate of inflation or a temporary decrease in the general price level in an economy. For example, if inflation falls from 3% to 1% per year, this is disinflation. If, however, the rate of inflation falls into negative territory, to 1% per year for example, and this decrease is expected to last, this is deflation.

In a recent piece Tandit Kandu of Mint clarifies the so called deflation only on account of fruits and veggies:

The second volume of the Economic Survey released a little over a week ago by the Union finance ministry warned that the Indian economy faces deflation risks owing to the problem of over-leveraged private sector balance sheetsand other headwinds such as GST and rural distress. Concerns over deflation risks are understandable, given the recent downward trend in retail price inflation.

However, a Mint analysis suggests that the sharp drop in inflation below the Reserve Bank of India’s (RBI’s) 4% target has been driven by only two items—pulses and vegetables. The analysis shows that consumer price index (CPI), excluding pulses and vegetables, rose at the rate of 3.8% in July, much higher than the official headline figure of 2.4% inflation for the month. The re-calculated CPI is based on adjusted weights after excluding pulses and vegetables from the basket of goods and services.


Thus, there does not seem to be any imminent threat of deflation in India. A more apt characterization of the recent trends in prices may be ‘disinflation’ (a fall in the inflation rate) rather than deflation (falling prices) given that overall inflation, excluding pulses and vegetables, is close to the RBI target of 4%.

This is pretty much the story each time deflation is mentioned in India. One or two items/categories lead to decline in inflation levels and we call it deflation in India and clamoring for monetary and fiscal stimulus.  Whereas deflation is persistent decline in most prices (if not all) and there is nothing of this sort happening here.

Infosys saga further dents image of corporate governance in India’s top firms….

August 18, 2017

Unbelievable scenes in the op echelons of India’s corporate sector. There is a simmering corporate governance crisis in firms that were once seen as Synonyms for ethical governance.

After the Tata Saga, comes the Infosys saga and this one is even more strange, The promoters of Infosys made big noises on how the firm will not be run by family members and will be run Professionally. However, in just a few years one of the promoters keeps looking for ways to come back to the firm.

Today morning Narayan Murthy’e leaked email to the Infosys Board said the current head is not fit to be a CEO but a Chief Technological Officer. There were accusations made by NRN earlier as well on governance issues in the Board.

Just a few hours ago the CEO Vishal Sikka resigned with a letter. To add to the fire, the Infosys Board lashed out at Mr Murthy and accused him as the reason for Sikka’s resignation:

It has come to the attention of the Board that a letter authored by Mr. Murthy, the Founder of Infosys has been released to various media houses attacking the integrity of the Board and Management of the Company alleging falling corporate governance standards in the Company. The Board takes great umbrage to the contents of the letter and places on record the following:


Why have a Museum of Finance? (Lessons for Museums of Finance in India..)

August 18, 2017

A nice piece (old piece in 2012) by Prof Richard Sylla of NYU in the Financial History publication released by Museum of American Finance.

He narrates several examples from financial history to show why a Museum of Finance is really important. These several examples show the importance and power of finance. Apart from this, these museums also shows importance of financial education which is poor amidst most people. A museum with right kind of communication technologies helps in many ways where dozens of government programs just fail.

In India, have seen three Finance Museums. The RBI Museum in Mumbai, the RBI Archives Museum in Pune and Corporation Bank Museum in Udupi. With RBI it is expected but to see Corporation bank having such a useful museum is quite surprising. It has amazing anecdotes which even likes RBI does not have in its resources. The unseen ones there is SBI Museum in Calcutta and former State Bank of Travancore which opened one just before it got merged with SBI.

So five museums of finance are there in India as per my limited knowledge and there could be few more. Five alone is an impressive number.

The problem with these Museums is that they do not communicate much with the outside world. They take their sole purpose as one of display and nothing else.

However, in museums like Museum of American Finance under whose publication Prof Sylla writes the idea is to reach across people:


%d bloggers like this: