Archive for the ‘Indian Economy/Financial Markets’ Category

Viral Acharya resigns from RBI..

June 24, 2019

Tamal Bandypadhyay of BS broke the news early morning that RBI DeputyGovernor Viral Acharya has resigned from the central bank.

One wanted some confirmations from the central bank before blogging. The central bank does confirm the news:

Reports have appeared in certain sections of the media that Dr. Viral V. Acharya, Deputy Governor of the Reserve Bank of India (RBI) has resigned from his post. In this connection it is stated as follows:

A few weeks ago, Dr. Acharya submitted a letter to the RBI informing that due to unavoidable personal circumstances, he is unable to continue his term as a Deputy Governor of the RBI beyond July 23, 2019. Consequential action arising from his letter is under consideration of the Competent Authority.

Puzzling to note that he had resigned sometime ago, yet we only come to know of his decision now.

After his October-2018 speech, his resignation was always a question of when and not if.

Interesting timing of both Viral Acharya and Urjit Patel. They resigned soon after the monetary policy meeting where it all looked good. Urjit resigned on 10-Dec-18 after the December-2018 meeting and Viral little later after the June-2019 monetary policy.



India’s GDP growth controversy points to deeper problems over economic advisory in the country..

June 20, 2019

One expected lots of analysis post Subramaniam’s paper but the choice of words is appalling. After accusing his research of intellectual treason, another economist wrote the following:

The Indian statistical process is robust, independent and continually improving. More can and should be done to strengthen it and its advisory committees but bringing in outside experts who do not understand the economy can be counter-productive.


What is even more worrisome is how the two authors are part of economic advisory. One is part of PM’s Economic Advisory Council and another is one of the several co-authors of PM EAC’ report questioning the analysis. And for all you know, PM’s EAC has people who would be considered as foreign experts. Infact, that is one of the most important criteria for getting economic policy positions in India!

This should not be acceptable. I really do not know why the established media houses agreed to publish such words. Moreover, one expects better judgement for those holding offices of power. Criticise something threadbare but one has to maintain some decorum.

Though, it points to even a larger point. One is increasingly seeing how economic advice is getting politicised. Anyone who becomes an economic adviser to the government is seen as being accountable to the government at power and not to the country at large. The job of the adviser is not seen as providing any economic advice but stand-up for the government at all costs.

Infact, it is fine if governments think that way. What becomes a bigger problem is when advisers also think and signal in the same direction.

Let us imagine that Arvind Subramaniam actually said the opposite using similar analysis: India’s GDP growth rate is underestimated by 2.5%. One is wondering whether EAC and its members would write similar articles criticising the approach? Most likely not and they would have celebrated the paper. But then that is the role of the adviser. To keep guiding on the right path. If AS’s paper follows poor methodology, it should be criticised either way.

Somehow the contract between Principal and Agent has weakened and does not inspire any confidence. This does not augur well for Indian economy at all.

The Paradox of India’s Green Revolution

June 20, 2019

Marshall Bouton in this article:

More than five decades after India launched the Green Revolution, its war on hunger is far from won.

The impetus for the Green Revolution came from harvest failures and famine conditions in the mid-1960s. But its main goal was to ensure India’s national food security, more precisely its self-reliance in food grain production. We can see now that the policies adopted then, and left largely unchanged since, have not only failed to eliminate hunger but also made more intractable the challenge of providing adequate and appropriate nutrition for all of India’s people. These policies have included subsidies for fertilizer and groundwater extraction, minimum support prices for food grains (especially rice and wheat), and procurement and public distribution of grains (also mostly rice and wheat).

Most govt interventions have consequences both intended and unintended….

The fallout of overestimated Indian GDP: Scrap RBI’s monetary policy panel or give it a dual mandate?

June 19, 2019

All  kinds of things being written after Arvind Subaramaniam’s research paper was released which said India GDP growth rate is overstated by 2.5%.

From being labelled a scoot and shoot economist to being accused of intellectual treason! It is such a pity when you are given all the names for merely writing a paper! I mean one can disagree with the ideas but accusing someone of treason! Really? How bad is it going to get? Cannot believe that a leading financial daily actually agreed to publish such acerbic stuff. How low is it going to get?

Anyways, another piece questions the role of RBI’s MPC:


From Harvard vs Hard work economists to scoot and shoot economists..

June 14, 2019

Lots of discussion ever since Arvind Subramaniam released his controversial paper. This was expected and am sure the former CEA weighed it before releasing.

This one by Sanjeev Ahluwalia is really hard-hitting. Earlier the foreign based economists were criticised as Harvard vs Hard-work. He adds another term for them: scoot and shoot economists. It means they change their location conveniently while writing their opinion. He also says such scooting and shooting will lead to government not taking interest in lateral entry recruitment.

Call for Papers: 50 years of Bank Nationalisation – Indian Banking at Cross Roads

June 12, 2019

It is a proud moment to be announcing this conference reflecting on 50 years of Bank Nationalisation. It will be held on 16-17 November 2019 at Ahmedabad University.

Conference details are here.

Last date for submission of abstract is 30-Sep-2019. Do pass on the word to interested researchers/scholars/bankers.


Will the weather Gods smile or frown? Evaluating Monsoon forecasts

June 11, 2019

RBI’s June-2019 Bulletin has this article by Priyanka Bajaj, D. Suganthi, Rishabh Kumar and Atri Mukherjee.

The India Meteorological Department (IMD) has predicted normal and well distributed South West Monsoon rainfall for 2019, which is at odds with the
forecasts of private and international agencies. This article drills analytically into past patterns of prediction outcome performances of various agencies through multiple statistical measures to evaluate their forecast accuracy.

The comparative assessment suggests that for generating macroeconomic forecasts, the use of IMD’s second stage long range forecast and the predictions of international agencies in conjunction may be appropriate as the preliminary forecasts of IMD and Skymet released in April appear to be noisy.

Good stuff RBI!

India’s GDP growth rate overestimated by around 2.5% in 2011-17 period

June 11, 2019

Arvind Subramaniam, former CEA has written this interesting piece in Indian Express which has opened a can of worms.

Based on his research paper, he writes Indian GDP growth rates have been overestimated for the period 2011-12 and 2016-17 by around 2.5%.


Building a Specialised Supervisory Cadre at Central Bank

June 10, 2019

My recent article in Business Standard.


RBI, the world’s model central bank? Just maybe

June 7, 2019

How quickly the sentiments change!

Daniel Moss writes in Bloomberg:

India is becoming the gold standard for monetary policy in Asia, if not the world.

While global markets are giddy from hints that the Federal Reserve may cut interest rates, India’s central bank has been easing since February. Just as important, Reserve Bank of India (RBI) has been very consistent in its message: Borrowing costs need to come down to juice growth. Passive inflation and the central bank’s full tank of gas make the case to cut even stronger. After Thursday’s trim, the benchmark rate is 5.75%.

RBI’s approach is correct. There’s no point targeting inflation if growth is waning and the very thing you’re aiming at is dormant. Thursday’s quarter-point reduction in the benchmark rate, the third in as many policy meetings, underscores the theme: “Growth impulses have weakened significantly,” according to the central bank’s statement.

“A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern.’’ RBI made clear that “global economic activity has been losing pace” and declared its stance to be “accommodative”.

Much focus is rightly given to Beijing’s efforts to pull both fiscal and monetary levers; as big as India’s economy is, China’s is much larger. But the People’s Bank of China tends to be opaque and is trying to thread the needle between buttressing the economy and fretting about financial stability.

Japan, meanwhile, gets plenty of attention as a pioneer of unconventional policies—yet its economy remains a parable about how booms can end in tears. And remember back in February, the consensus was that the Fed had just paused before resuming hikes. Few serious observers believe that now.

So give governor Shaktikanta Das his due. RBI’s rate cut in February was risky—few economists anticipated it—but appropriate. The signalling power was immense. Officials followed that up with another reduction in April. The outlook has only deteriorated since then.


Much of this is also plain luck as well. If inflation went up somehow, the same rate cuts would have made RBI as the worst central bank.

I also think too much attention is paid to these policy rate changes which is mostly here and there. WHat is very concrete is banking supervision which is housed in quite a few central banks including RBI. There was fair criticism over RBI’s handling of NBFC crisis in yesterday’s meeting. From banks to NBFCs, the crisis continues yet does not affect sentiments is quite unbelievable..

Deccan Queen, one of the most iconic trains of India, enters 90th years of service

June 5, 2019

The iconic train line started on 1 June 1930 and enters its 90 years.

ET has pictures and description of the journey of the train which led to so many journeys..

Indian macro policy’s 2-4-6-8 framework..

June 4, 2019

Niranjan Rajadhyaksha continues to educate us this time via a working paper.

He gives this brilliant insight that Indian economy operates under a 2-4-6-8 framework. These are acceptable targets for current account deficit, retail inflation, consolidated fiscal deficit and growth rates:

Indian macro policy has been operating under an implicit 2-4-6-8 framework, which are the targets for the sustainable current account deficit, the desired level of retail inflation, the consolidated fiscal deficit target embedded in law and the aspirational rate of economic growth. There is a need to take a fresh look at this macro policy playbook for two reasons. First, the individual targets have been decided at different points of time by different parts of the economic policy ecosystem rather than emerging from a common analytical project. Two, there are reasons to doubt its internal coherence given that India has rarely been able to meet all four targets simultaneously over the past decade.

The tricky political economy decision for the new government elected in May 2019 is whether to ease some of the economic stability constraints such as the fiscal deficit, the current account deficit and retail inflation in a bid to maintain economic growth at 8 percent; or continue to prioritise hard-won economic stability while facing the risk of social unrest as lower economic growth fails to provide the adequate number of jobs in formal enterprises; or put in place policy reforms that can help raise potential growth without creating periodic bouts of macroeconomic instability. This working paper argues in favour of the third option with five sets of policy recommendations, so that economic growth accelerates without putting economic stability at risk.


60th foundation day of India’s Swatantra Party

June 4, 2019

Kumar Anand alerts to the 60th anniversary of India’s Swatantra Party.

Today marks the 60th foundation day of Swatantra Party — independent India’s first and only major liberal political party. It remains the only party in Indian history to pursue ‘the principle of maximum freedom for the individual and minimum interference by the state’.

Founded by Mr C. Rajagopalachari, popularly known as Rajaji, the party stood ‘to oppose socialism of the communist kind’. The threat of communism may have been thwarted, but the socialism is alive and well.

Today, when the role and scope of government grows in all aspects of our lives curtailing individual choice and ignoring institutional accountability, let’s resolve to put the individual at the center of our policy making.

A brief history of the Swatantra party and the principles it stood for –

Statement of Principles of the Swatantra Party –

Archive of Indian Liberal works –


RBI’s financial literacy week: 3 June – 7 June 2019

June 3, 2019

This week, RBI is promoting Financial Literacy to farmers:

The Financial Literacy Week is an initiative of RBI to promote awareness on key topics every year through a focused campaign. Financial Literacy Week 2019 will be observed from June 3-7 on the theme of “Farmers” and how they benefit by being a part of the formal banking system.

Growth in agriculture is necessary for the overall economic growth & finance is an essential enabler for the same. RBI is actively involved in formulating policies that enhance the flow of credit to the farming community. In recent years, the Bank has undertaken several initiatives to strengthen credit delivery mechanism and financial inclusion.

In order to build awareness and disseminate financial literacy messages to the farming community, focused content in the form of posters and leaflets have been prepared for dissemination. Banks have been advised to display the posters and content in their rural bank branches, Financial Literacy Centers, ATMs and websites. Further, RBI will undertake a centralized mass media campaign during the month of June on Doordarshan and All India Radio to disseminate essential financial awareness messages to farmers.

It is RBI’s endeavour to reach out to the farming community and all stakeholders are requested to co-ordinate and make this financial literacy campaign a success.


Did RBI’s inflation targeting framework tame the inflation lion…

June 3, 2019

Post-election results, time to get back to economics.

There are debates on whether RBI needs to revisit its inflation targeting framework. Moreover, did the IT framework tame the inflation lion (or slayed the inflation dragon, take your pick).

This Mint piece argues the framework was a rip roaring success. Another CNBC-TV18 piece says we cannot be sure and asks for a open debate on the topic. It quotes this example:

CPI inflation has come down sharply from 8.60 percent when the current framework was suggested in January 2014, to 2.92 percent now. Should we not give some credit to the framework?

Here is a classic trap that my old professor warned of. Whiskey and soda intoxicate John, gin and soda intoxicate John, vodka and soda intoxicate John, ergo, soda intoxicates John.

As a parallel, low food prices and the framework brought down inflation, low crude oil prices and the framework brought down inflation, favorable external context and the framework brought down inflation, therefore, has the framework brought down inflation?



Analysing monetary policy statements of the Reserve Bank of India

June 3, 2019

Interesting paper by Aakriti Mathur and Rajeswari Sengupta:

In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy.

Next, we study the influence of various aspects of monetary policy communication on financial markets. Using natural language processing tools, we construct measures of linguistic and structural complexity that capture governor-specific trends in communication. We find that while RBI’s monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years.

We also find that there has been a persistent semantic shift in RBI’s monetary policy communication since the adoption of inflation-targeting.

Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.


Nirmala Sitharaman: 29th Finance Minister of Independent India

May 31, 2019

Have been trying to figure the tenure of Finance Ministers since independence. It perhaps look like the following table. (Will be happy to correct if someone can point to corrections, s have used mostly Wikipedia (bad source) to figure the dates):


How Vadodara Became a Hotbed of Financial Scams & Rackets?

May 30, 2019 in this piece:

Vadodara in Gujarat is also called as ‘Sanskaari Nagari’ or the Cultured city, as much of Gujarat’s history and heritage finds its roots here.

But of late, the city is also shaping up to be a hot bed for scamsters who have allegedly resorted to financial fraud, which in some cases are to the tune of thousands of crores of rupees. These cases pertain to bank frauds where companies have duped loan syndicates and misappropriated the funds and rackets carried out in public works and infra development projects.

Incidentally, it is speculated that big ticket economic frauds have links with national-level political parties, while the other rackets are rooted in corruption and apathy at the civic body level.

The Quint lists out a range of such scams that has its roots in Vadodara.

Quite a few frauds and scams.

Here are some related articles: one, two.

The Indian bond markets has a godfather in RBI for now..

May 22, 2019

Aparna Iyer of Mint in this piece:

Exit polls may not have enthused bond traders like their peers in equity and forex markets. Yields are down just six basis points this week. However, bond investors should remember that the biggest buyer, the Reserve Bank of India (RBI), is still around.

After having to binge on bonds in FY19, RBI has bought another 25,000 crore worth of bonds so far this month. That is more than a quarter of the scheduled supply from the government for the month. The central bank has also cut its policy rate by a cumulative 50 basis points since January and infused more liquidity through forex swaps.


This is not a good thing. Hope markets move on their own..

History of India’s NBFCs: 70 Years Of Potholes And Repair Work

May 20, 2019

New piece in Bloomberg Quint.

I explore how NBFCs and its regulation have evolved over the years in India.

It is useful to get opportunities with BQ to write on various aspects of Indian financial history. One learns a lot writing these pieces.

The pieces written so far:

Earlier pieces for Mint on Sunday (which was suddenly stopped):

Hope many more to come…

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