The Gold Tax, Indian Express, 27 March 2012
http://openlib.org/home/ila/MEDIA/2012/gold.html
The inflation crisis of the last six years, coupled
with a persistent lack of financial inclusion alongside a decade of
high GDP growth, has given an upsurge in demand for gold. The
increase in custom duty on gold proposed by the Union Budget, and
the reduction in the loan-to-value ratio of gold loans by the RBI,
will hurt the poor. How not to disinvest, Indian Express, 15 March 2012
http://openlib.org/home/ila/MEDIA/2012/ongc_disinvestment.html
Gearing up for the Union Budget, last week the central
government made an attempt to keep the fiscal deficit for the
current year under control through ONGC disinvestment. The auction
did not go well. The events that unfolded point to inherent
weaknesses in the implementation capacity of the
government. Unburdening RBI, Financial Express, 9 March 2012
http://openlib.org/home/ila/MEDIA/2012/fe_dmo_bill.html
The government has announced its commitment to table
the Public Debt Management Agency of India Bill in Parliament in
budget session 2011-12. This will pave the way for an independent
Debt Management Office (DMO). Right facts, wrong conclusion, Financial Express, 23 February 2012
http://openlib.org/home/ila/MEDIA/2012/fe_rupee_app.html
The turnaround of the rupee dollar rate in recently
weeks is seen as a consequence of successful intevention by the RBI
in the foreign exchange market. The rupee stopped depreciating, and
actually appreciated, after a set of small nudging steps by the
RBI. This perception has led to increased support for an
interventionist policy. But evidence suggests that the behaviour of
the currencies of large emerging markets was similar to that of the
rupee. The RBI was leaning with the wind, rather than against
it. Costly mistake, Indian Express, 20 February 2012
http://openlib.org/home/ila/MEDIA/2012/costly.html
The growth rate of India's GDP has declined to below 7
percent per annum. When in 2008, GDP growth in India did not fall
sharply as it did in the US, the epicentre of the global financial
crisis, we hoped that India had escaped the crisis. But the growth
in production has fallen slowly, and with a lag. However, the
downswing of the cycle around the trend line, is now showing signs
of persistence. Further, the lack of macroeconomic stabilisation
policies imply that we may not be able to engineer the kind of sharp
upturn in economic growth that the US economy appears to be
currently witnessing. Systems beyond silos, Financial Express, 11 February 2012
http://openlib.org/home/ila/MEDIA/2012/fin_stbility.html
Central banks in advanced countries have been held
accountable for price stability. The job of maintaining financial
stability is a new focus that has been entrusted to many central
banks, finance ministries and financial sector regulators since the
2008 crisis, when it was realised that no one was adequately looking
at systemic risk in the financial sector. The RBIs self-serving bid, Indian Express, 31 January 2012
http://openlib.org/home/ila/MEDIA/2012/rbi_regulator.html
RBI has asked the Finance Minister to amend the Reserve
Bank of India Act, to allow it to supervise non-bank subsidiaries of
banks. The other regulators should, according to RBI, be relegated
to advisory functions. Doing this would constitute a major change to
existing financial laws. This financial reform would be a
significant step in moving India towards a single financial
regulator, and towards making RBI that regulator. While there is a
strong case for a unified regulator, the task of financial
regulation should be separated from the job of conducting monetary
policy. This would give an independent central bank doing monetary
policy (and nothing else), and a unified second agency doing all
financial regulation and supervision. UID as users ID, Indian Express, 27 January 2012
http://openlib.org/home/ila/MEDIA/2012/uid.html
The governement appears to be working towards an
amicable solution on the question of who can collect biometric
information data for the Indian population. There has been
disagreement about whether this will be done by the UIDAI headed by
Nandan Nilekani, or the National Population Register headed by the
Home Minister, P. Chidambaram. It now seems that both may continue
to collect data but share its use. Not just their roll call, Indian Express, 20 January 2012
http://openlib.org/home/ila/MEDIA/2012/pisa.html
The PISA results show that education in India must now
change its primary focus to the quality of education.The first
internationally comparable measurement of what our children learn in
schools has shown that India is second from the bottom among the 74
countries measured. Levels of enrollment in primary education in
India are now nearly a hundred percent for boys and marginally less
for girls. The challange is no longer how to get children into
schools, but how to educate them. Reserve Bank, refocus, Indian Express, 28 December 2011
http://openlib.org/home/ila/MEDIA/2011/macrostability.html
When the world economy faced a crisis in 2008, India
prided itself on escaping relatively unhurt. Now that the Indian
economy is slowing down, owing to both the impact of the global
slowdown and uncertainty, and the policy framework in the domestic
economy, a part of the blame is being put on monetary policy. It is
claimed that monetary policy is excessively tight and has caused the
decline in investment. It is further argued that a cut in interest
rates will solve the problems of the Indian economy and push up
growth. Stop controlling, Indian Express, 19 December 2011
http://openlib.org/home/ila/MEDIA/2011/control_derivatives.html
The RBI has imposed numerous controls on currency
derivatives to prevent rupee depreciation. In the days of command
and control a number of prices, including those of sugar, cement,
steel and the Indian rupee were controlled by the government. A
central them of India's reform after 1991, where the first big step
was a 25 percent devaluation of the rupee, has been getting
government out of setting prices. Zones of scepticism, Indian Express, 8 December 2011
http://openlib.org/home/ila/MEDIA/2011/bank_fisc_borrowing.html
On December 9th Eurozone will attempt to find a
solution to the deepening banking and fiscal crisis in Europe. Many
believe that liquidity provision may provide a short term solution,
but the deeper problem of solvency of many governments will
remain. Borrowing by governments and lending by banks often has a
strong overlap. This relationship has a long history in India. In
the light of the problems of Europe, it is important to look at this
intimate connection with fresh skepticism, and worry about
distancing bank assets from government bonds. Holding risk free
government bonds, a practice Basle norms encouraged for banks, has,
as it has turned out, encouraged governments to borrow
imprudently. Floating on the rupee, Indian Express, 23 November 2011
http://openlib.org/home/ila/MEDIA/2011/rupee_down.html
The rupee has depreciated sharply in the last one
week. We are fortunate that unlike countries in the Eurozone like
Greece and Italy, who do not have the advantage of a flexible
currency, we have one of the most important mechanisms of
macroeconomic adjustment working our favour. However, the adjustment
can happen only if accompanied by other supporting policy
changes. Lessons from afar, Indian Express, 18 November 2011
http://openlib.org/home/ila/MEDIA/2011/governance_italy.html
The Italian economy poses one of the biggest dangers to world GDP today. The story of how this came about has striking lessons for India. India's growth story, something we often take for granted, could well go badly unless rule of law is imposed, government becomes more effective and corruption is brought under control. Questions in reserve, Indian Express, 8 November 2011
http://openlib.org/home/ila/MEDIA/2011/world_reserves.html
International reserve holdings by all countries put together have risen rapidly since 2000. They did not go down during the crisis as few countries used reserves in the crisis, allowing their currencies to depreciate in response to capital outflows as they also faced declining export growth. Post-crisis, there are new reasons for central banks to build reserves. We should expect to see a rise in international reserves in the coming decade. As a consequence, despite all its debt difficulties, the US government it likely to continue see demand for its bonds rising. Save the cash, Indian Express, 25 October 2011
http://openlib.org/home/ila/MEDIA/2011/save_cash.html
The debate about foreign exchange reserves and their uses has resurfaced after news that the RBI has turned down a Ministry of Finance proposal to buy raw material sources using reserves. The Government of India appears to have a lot of confusion about the concept of reserves and who owns them. Three balancing acts, Indian Express, 17 October 2011
http://openlib.org/home/ila/MEDIA/2011/balancing.html
The world economy went through a surprisingly easy recovery in 2010. However, the deeper economic problems did not get solved that easily. The outlook for the world economy is now once again gloomy. Indian policy makers need to understand where the risks to the Indian economy lie and have action plans ready in case a crisis occurs. Better not step in, Indian Express, 2 October 2011
http://openlib.org/home/ila/MEDIA/2011/currency_impact.html
The recent sharp movement of rupee dollar exchange rate is part of the turmoil in world markets, which are currently witnessing large currency flows. In coming months, world economic conditions may lead to a further increase in cross border flows, and currency markets may see even sharper movements. Don't defend the Rupee,RBI, Financial Express, 24 September 2011
http://openlib.org/home/ila/MEDIA/2011/fe_intervention.html
Turmoil in global currency and stock markets has led to
large movements in the rupee and it weakened sharply. Should the RBI
have intervened in a big way to try to prevent rupee depreciation?
Even under normal times, defending a currency is a difficult job. In
present times, a central bank of one country trying to bravely fight
the tsunami of financial flows with its little kitty of reserves
would be a really bad idea. As the Rupee hit Rs 50 to a dollar, the
best thing RBI could do was to keep away from the foreign exchange
market. Watch like a hawk, Indian Express, 21 September 2011
http://openlib.org/home/ila/MEDIA/2011/hawk.html
Raising interest rates when growth is slowing down
would not have been an easy decision to make for Reserve Bank
Governor D Subbarao. However, despite the unpopularity of his
stance, he did not take a short term view of the problem. He did not
respond to the clamour for no further raising of interest
rates. This was the right thing to do. Floating concerns, Indian Express, 12 September 2011
http://openlib.org/home/ila/MEDIA/2011/export_slowdown.html
Export data has been showing exceptional growth. Such
growth is unlikely to be maintained in the future given the gloomy
outlook on the world economy. In 2010 and 2011, if a slowdown in
investment was taking place, remarkable exports growth helped to
counteract the impact upon demand in the economy. If, in coming
months, a reduced pace of investment growth and export growth come
together, this would exacerbate the downturn. A 10 percent safeguard, Indian Express, 1 September 2011
http://openlib.org/home/ila/MEDIA/2011/private_bank.html
RBI has issued draft guidelines for private bank
licences. These emphasise dispersed shareholding. Proposed rules on
entry into banking require that for a company to get a bank licence
no one entity holds above 10 percent shares in a company. These
rules are similar to those proposed by the Bimal Jalan committee
that for the ownership of an exchange no one entity holds above 5%
shareholding. These rules are on the right track. However, as recent
experience in telecom and stock exchanges has shown, enforcing such
rules is going to be a challenge. RBI will need strong investigative
capabilities, such as in SEBI, in carefully sifting through the bank
license applications that it will receive. As the debt piles up..., Financial Express, 13 August 2011
http://openlib.org/home/ila/MEDIA/2011/us_debt_fe.html
Number casting, Indian Express, 11 August 2011
http://openlib.org/home/ila/MEDIA/2011/downgrade.html
The credit rating agency Standard and Poor's downgraded
US soverign ratings from AAA to AA+ after the US government failed
to agree on a path of fiscal consolidation. On August 5, the US
Congress voted to raise the debt ceiling of the US as required by
the Public Debt Acts. The agreement reached among political parties
in the US was to inflict no pain until the end of 2012. The lack of
fiscal tightening indicated the difficulties America has in arriving
at a political consensus for reducing the fiscal deficit. The
political discourse that preceeded the last-minute increase in the
federal debt ceiling undermined the credibility of the US
government's commitment to deficit reduction and contributed to the
downgrade. Fiscal analysis was the other component. Liberalisation 2.0, Indian Express, 2 August 2011
http://openlib.org/home/ila/MEDIA/2011/liberalisation.html
The liberalisation ushered in by the Congress
government twenty years ago opened up enormous new opportunities. It
removed the restrictions placed on markets and trade that had been
imposed during the socialist era. Getting the government out of
meddling in the economy was valuable, and a lot more needs to be
done in that spirit. However, the looming challenge that India now
needs to confront is not that of mere deregulation, but that of
building the legal and institutional infrastructure for a market
economy. Government pushing welfare measures more than reforms,
Financial Express, 24 July 2011
http://openlib.org/home/ila/MEDIA/2011/welfare_fe.html
India will complete twenty years of liberalisation
today. The removal of the licence permit raj was done with hope that
it would usher in a market economy. The focus of the government in
the last few years has been quite different. In contrast to reforms
that were meant to help India turn into a market economy, the
goverment has turned to providing benefits to the people. Both are
meant to reduce poverty but the basic philosophy of the two
approaches is quite different. While the former was meant to
increase the pie, the present approach focussing not on growing but
on redistributing the pie. Wages of a quick fix, Indian Express, 21 July 2011
http://openlib.org/home/ila/MEDIA/2011/nrega_wages.html
The Ministry of Agriculture has asked for NREGA to be
suspended during peak farming seasons of sowing, transplantation and
harvesting. NREGA has raised the cost of farming, by pushing up
labour costs by as much as 40 per cent. This is particularly
problematic in states like Punjab and Haryana, where farmers depend
on migrant labourers from poorer states in peak time. Turn in the India story, Indian Express, 11 July 2011
http://openlib.org/home/ila/MEDIA/2011/india_story.html
The India shining story is turning gloomier every
day. Not long ago we were exuberant that India would become a fast
growing economy with good institutions and healthy markets. While
economic reforms unleashed economic growth, is growth in peril owing
to the lack of legal, governance and institutional reforms that
should have accompanied reforms? Fuelling a transition, Indian Express, 29 June 2011
http://openlib.org/home/ila/MEDIA/2011/fuel.html
The government recently raised the administered price
of kerosene, diesel and cooking gas at which oil companies sell
their products. At the same time it reduced custom and excise duties
on these products, and has appealed to state governments to cut
sales taxes on them to soften the impact on consumers. While this
combination may have been done for short-term political gains, it
could pave the way for reform bringing in a rationalisation of the
tax and subsidy structure in the sector. The percentage game, Indian Express, 20 June 2011
http://openlib.org/home/ila/MEDIA/2011/credit_june.html
The RBI credit policy continued with its
anti-inflationary stance raising interest rates, and indicated that
controlling inflation would be its priority. For a central bank to
be able to prevent price shocks from becoming persistent inflation,
its policy strategy has to go beyond episodic rate hikes to a
full-blown strategy of commitment, communication and
consistency. The colour of evasion, Indian Express, 8 June 2011
http://openlib.org/home/ila/MEDIA/2011/evasion.html
Black money of Indian citizens held abroad might only
be a fraction of the black income in the domestic economy. All black
money, whether held in India or abroad, should be traced to
individual accounts, and legal proceedings undertaken to ensure
payment of taxes. At the same time, black money is being generated
in the domestic economy all the time. This is a consequence of the
failure to implement the GST, to remove loopholes in the tax system,
to get rid of high statutory tax rates and weak tax
administration. These are issues that can be sovled more
quickly. Who is investing now?, Indian Express, 30 May 2011
http://openlib.org/home/ila/MEDIA/2011/invest_india.html
Concerns about slowing investment, both domestic and
foreign, have become stronger in recent months. The sluggishness in
new projects being announced seen since the global financial crisis
has continued, resulting in a slowdown in the growth rate of private
corporate investment. This is bad news for both growth and
inflation, as growth will slow down and inflation will remain
high. At the same time, real interest rates remain low, both
historically and in comparison with other emerging
economies. Deflated credibility, Indian Express, 19 May 2011
http://openlib.org/home/ila/MEDIA/2011/credibility.html
RBI Governor's speech in Basel was made 6 days after
the hawkish credit policy announcement for this year. The Governor
defined the role of the RBI as it is seen in the RBI Act of 1934,
opposed any change in the role and functioning of the RBI despite
developments in financial markets, in the Indian economy and in the
field of monetary economics since 1934. This speech repeats the
flaws of RBI communication of recent years, undermines the impact of
the recent monetary policy announcement, and increases the cost that
India will have to suffer in bringing inflation under
control. The message is the aim, Indian Express, 6 May 2011
http://openlib.org/home/ila/MEDIA/2011/message.html
In the monetary policy statement earlier this week, the
RBI changed its policy stance to a strong anti-inflationary
one. However, this step, though much needed and in the right
direction, will not be enough to bring inflation down. Hiking rates
and contracting demand is only one part, the painful part of the
story. An equally imporant element is public perception about the
central bank. To build credibility on its anti-inflationary stance,
RBI will need to improve its research capacity, communication
strategy, get rid of conflicting objectives and be consistent in its
pursuit of inflation control. This part, fortunately, does not hurt
anyone. It needs a change in the framework, functions and objectives
of RBI. Not by rate hikes alone, Indian Express, 27 April 2011
http://openlib.org/home/ila/MEDIA/2011/target_inflation.html
Inflation continues to persist and pose a problem even
though food inflation has declined. For nearly two years RBI's
stance on inflation was that food inflation is caused by supply side
constraints, and the RBI could not, and should not, do anything
about it. The result of that policy has been high inflationary
expectations and persistent inflation. Today when world crude oil
prices are rising, what should RBI's policy be? Should it again take
the stance that there is nothing the RBI can do about world
commodity prices and hence monetary policy need not respond?
A bad time to lose control, Indian Express, 16 April 2011
http://openlib.org/home/ila/MEDIA/2011/capital_controls.html
The debate on the effectiveness of capital controls has
come alive after an IMF staff proposal supporting the use of
controls by emerging economies facing large volatile inflows. The
impact of controls on the magnitude and composition of capital
flows, on cost of transaction and monetary policy have been a
subject of enormous debate. There is however little consensus on the
issue. Experience about the effectiveness of capital controls varies
according to country-specifics. To the extent that there are country
specific characteristics that make capital controls effective,
understanding individual experiences with capital controls gains
significance. Liberate by growth, Indian Express, 5 April 2011
http://openlib.org/home/ila/MEDIA/2011/sexratio.html
For every thousand boys in India, there are only 933
girls in the age group of children upto 6 years old. Blaming the
failure of the health regulatory system in preventing female
foeticide is a superficial response. The bias against the girl child
is a much deeper disease. The child sex ratio is only a symptom of
that disease. As long as the deeper problems remain with us, the
preference for the male child, and his better care during childhood
is likely to stay. These deeper problems are cultural, sociological
and economic. Though increased literacy and GDP growth are not
sufficient conditions to overcome them, they are necessary
conditions. Increasing paid employment of women outside the home, or
family farm, is a pre-condition for caring better for our
daughters. We have come a long way, Indian Express, 26 March 2011
http://openlib.org/home/ila/MEDIA/2011/emerged.html
Warren Buffet said that India is no longer an emerging
market. In some ways, India does seem to have outgrown the symptoms
of emerging markets. The patterns of a typical emerging market
crisis are well known, and now it appears that such a crisis is
increasingly unlikely to hit India. But in other respects, there is
still much work in store for India to get away from the difficulties
of emerging markets. Moving with the cycle, Indian Express, 14 March 2011
http://openlib.org/home/ila/MEDIA/2011/ninepercent.html
High GDP growth in India has created expectations of
persistent 9 percent GDP growth. The government and various
forecasters expect the Indian economy to keep growing steadily at 9
percent year after year. Looking towards China and its multi-decade
high GDP growth experience, it has been argued that India can, and
should, aim for such growth. This argument translates into a policy
stance which encourages expansionary fiscal and monetary policies
when growth falls to 7-8 percent. It is tolerant of higher inflation
and it supports an expansion of demand even when inflation is
already high. A new opening act, Indian Express, 2 March 2011
http://openlib.org/home/ila/MEDIA/2011/budget2011_cac.html
Increasing corporate debt caps for foreign
institutional investment and allowing retail foreign investors to
invest in Indian mutual funds are two significant initiatives in
Budget 2011. These steps towards greater capital account
liberalisation will not only attract foreign capital for India's
enormous infrastructure needs, they will also make Indian financial
markets more stable and the economy more resilient. Why growth matters, Indian Express, 23 February 2011
http://openlib.org/home/ila/MEDIA/2011/growth_matters.html
India's long term growth story remains intact. Yet, in
the recent period, investor confidence in India has declined. The
last decade saw high private corporate investment as the main engine
of growth. Investment growth has been at risk since the global
financial crisis impacted business prospects. In recent months,
there has been a decline in the stock market, and in foreign
investment into India. Budget 2011 must focus on improving the
investment climate to sustain India's high GDP
growth. Cannot trust that IIP data, Financial Express, 19 February 2011
http://openlib.org/home/ila/MEDIA/2011/fe_deciip.html
The sharp drop in the growth rate of IIP should be
viewed with caution. The index rose by a mere 1.6 percent compared
to December 2009. The sharp slowdown has raised questions about the
need for fiscal and monetary consolidation. There are two issues to
consider. First, that the data may not reflect actual production,
given that the production basket has weights from 1993-94, which
excludes some of the items that have a large share in production
today. Second, the slowdown in IIP has come from a decline in
capital goods production, which suggests that investment activity is
down. Indexing inflation, Indian Express, 11 February 2011
http://openlib.org/home/ila/MEDIA/2011/index_inflation.html
As India grapples with the problem of high inflation,
the issue of inflation measurement assumes importance. People
sometimes feel that prices are rising faster than the headline
inflation numbers reported by the government. This is not
unreasonable if the government's statistical system does not
correctly measure prices of the goods that people consume, or take
into account the structure of household expenditure. In India this
problem has been made worse by the media and policy focus on
wholesale prices (WPI), instead of consumer prices (CPI). The
existing CPI measures are a better measure of what is going on. The
CPI is about to be improved significantly. In addressing our
inflation crisis, policy makers and the public at large need to
devote their focus to inflation as seen in the CPI. Greasing our shock absorbers, Indian Express, 3 February 2011
http://openlib.org/home/ila/MEDIA/2011/capital_inflow_vol.html
Capital flows have fluctuated quite a bit in recent
months. We have swung from fears of too much money coming in, to
fears of too little money in. The change in inflows depends on
factors ranging from conditions in global financial markets, to
domestic land policies. India's approach to capital flows lies in
policy changes to encourage diversified flows, and in financial
development. More diversifed flows will reduce the volatility of
capital flows, more liquid financial markets will make the economy
resilient to fluctuations in capital inflows. Making sense of capital flows, Financial Express, 29 January 2011
http://openlib.org/home/ila/MEDIA/2011/fe_composition.html
The RBI has expressed concerns about the composition of
capital flows. The January 25, 2010 credit policy said that "the
composition of capital inflows needs to shift towards longer-term
commitments such as FDI". While at first blush the data suggests
that there may be a cause for concern, but a more detailed
examination of the data suggests that it may be a bit soon to start
worrying. Onion layers, Indian Express, 13 January 2011
http://openlib.org/home/ila/MEDIA/2011/inflation_control.html
The government is grappling with the problem of
inflation. The solution to persistent, moderate is not straight
forward. It needs a multi-pronged approach. Agricultural reform and
stabilising macroeconomic policy need to be two important elements
of this strategy. So much they do not know, Indian Express, 3 January 2011
http://openlib.org/home/ila/MEDIA/2011/rbi_agenda.html
The Indian economy is showing signs of overheating. But
RBI lacks a clear monetary policy framework that can address the
problem. In the coming years RBI should focus on the research that
will build the foundations of such a framework. Going around in circles, Financial Express, 25 December 2010
http://openlib.org/home/ila/MEDIA/2010/fe_tight_liq.html
Since mid-September money markets are facing tight
liquidity conditions. In September this was said to be caused by
advance tax payments. Last month the RBI governor suggested that the
tightness was because the government not spending enough. Some
observers have suggested that demand for cash has increased
following for government programs like the NREGA which put money
into the hands of poor people. Others blame the banking sector,
claiming that since the banking sector has pulled back on its
activities after the crisis, the money multiplier has
contracted. Regardless of whether the government, banks, or
households are to blame for the higher demand for liquidity, the
fact remains that there is tightness in the system. Causes and no effects, Indian Express, 20 December 2010
http://openlib.org/home/ila/MEDIA/2010/causes_effects.html
RBI credit policy has given conflicting signals about
the stance of monetary policy. The RBI has many instruments in its
hands. Perhaps that is part of the problem. Faced with high
inflationary expectations on one hand, and tight liquidity in money
markets on the other, RBI has left interest rates and the cash
reserve ratio unchanged, while announcing open market operations to
ease liquidity. In recent months, it intervened in foreign exchange
markets in amounts that could not possibly impact the rupee, and
perhaps only help increase liquidity. The result is a state of
confusion about the stance of monetary policy. The European scare, Indian Express, 9 Dec 2010
http://openlib.org/home/ila/MEDIA/2010/us_euro.html
The Indian economy has grown rapidly while the US and
Europe continue to face serious problems. Many observers suggest
that emerging economies and advanced countries may continue to
witness different growth rates. However, this may be a short run
phenomenon, and in the longer run, unless deeper problems of
industrial countries are not solved, they may pull the whole world,
including emerging economies, down with them. Consumed by America, Indian Express, 29
http://openlib.org/home/ila/MEDIA/2010/us_economy_transfers.html
Over the past two years, the need for rebalancing the
world economy has often been discussed at forums like the G20. But
it was not made explicit what it involved. At the recent G20
meeting, there was little consensus on the issue, as it became clear
that rebalancing can only be achieved through a depreciation of the
US dollar. While rebalancing of the world economy may be good for
all countries in the long run, in the short run there will be
winners and losers. This could make rebalancing a truly difficult
objective to genuinely agree upon. Sailing past QE2, Indian Express, 11 November 2010
http://openlib.org/home/ila/MEDIA/2010/qe2.html
While most countries have criticised the US for trying
to boost its economy through monetary easing, Prime Minister
Manmohan Singh supported the move saying that the world will be
better off if the US grows faster, and so will India. In taking this
position India stands out as perhaps the only country that is not
merely looking at short term considerations, but at the long term
and wider implications of a prolonged world wide recession. However,
this sentiment also reflects the strength and resilience that the
floating rupee and large domestic consumption demand have given to
the Indian economy. Pegged to the present, Indian Express, 29 October 2010
http://openlib.org/home/ila/MEDIA/2010/currency_wars.html
India needs to rethink its position on the Chinese yuan
policy. In addition to currency flexibility being in China's own
interest, it is in India's interest if China shifts to an exchange
rate regime with greater flexibility. Where are all the investments going?, Financial Express, 23 October 2010
http://openlib.org/home/ila/MEDIA/2010/doubledip.html
While the US and Europe are worried about a double dip
recession, the Indian growth story has so far looked good. However,
despite the official GDP data holding up, investment appears
sluggish. Since investment has been the strongest driver of growth
in recent years, this is a worrying trend. Three indicators that
give us some information about how investment activity is expected
to behave in coming months suggest that growth in investment may
decline. Current account caution, Indian Express, 8 October 2010
http://openlib.org/home/ila/MEDIA/2010/current_caution.html
India's current account deficit widened to 3.7 percent
of GDP in the April-June 2010 quarter. Imports are about one and a
half times of exports and they grew rapidly as the Indian economy
witnessed healthy growth. Exports of goods and services also
witnessed high growth, but not fast enough to prevent the deficit
from rising. Anchoring expectations, Financial Express, 18 September 2010
http://openlib.org/home/ila/MEDIA/2010/fe_vsp.html
Anchoring expectations Wages of inflation, Indian Express, 17 September 2010
http://openlib.org/home/ila/MEDIA/2010/inflation_targeting.html
Yesterday, RBI hiked interest rates and the government
hiked the dearness allowance for central government employees by 10
per cent in response to higher inflation. While most other countries
in world are witnessing low and falling levels of inflation,
inflation in India has risen in recent months. The two-decade gap, Indian Express, 6 September 2010
http://openlib.org/home/ila/MEDIA/2010/uks.html
The U K Sinha report has recommended cleaning up of
India'a capital control regime, bringing in principles of
transparency and rule of law to an opaque system of regulations that
have become a maze over the years. Proposed changes include a single
window for portfolio investment, an applelate body for decisions
made under FEMA and changes in regulations that smart lawyers help
investors find ways around. Food for thought, Financial Express, 28 August 2010
http://openlib.org/home/ila/MEDIA/2010/fe_core_inflation.html
Food inflation has come down in recent weeks. In the
coming months it will continue to show a further decline. The
concern today is not rising food inflation, or even fuel inflation,
a result of fuel price hike by the goverment, but of rising
non-food, non-fuel inflation. There can be a number of reasons for
this. One, the rise in food prices last year has pushed up cost of
living and wages today are higher than they were a year ago. Higher
wage costs have pushed up the cost of production. Second, the
depreciation of the rupee witnessed after the financial crisis has
raised prices of tradables, often raw material inputs. As long as
this was seen as a temporary effect, prices were not
raised. However, since the depreciation did not reverse, higher
prices of tradables were seen as the new equilibrium and prices of
output went up. Third, inflationary expectations have risen. The
large fiscal deficit has pushed up demand. Speeches by the RBI
Governor suggesting that inflation control is not the dharma of RBI
have unhinged inflationary expectations. Higher inflationary
expectations feed into higher prices and wages. Shampoo and social equality, Financial Express, 15 August 2010
http://openlib.org/home/ila/MEDIA/2010/caste.html
Economists have tended to focus on expenditure
patterns, consumption and income to assess poverty and inequality in
rural India. Within these categories, the debate among economists
normally focuses on the average consumer or the one living below the
poverty line. This approach fits well with methods for studying
changing inequality in most countries. However, it ignores the most
important aspect of rural India - the inequality created by the
caste system. A focussed study of dalits finds that the growth of
the market economy has ushered in a reduction in caste and social
inequality with an impact more fundamental and far reaching than the
changes in average income or expenditure patterns. Dalit well being,
when measured by personal consumption patterns, practices around
social events, personal relationships across castes and expansion
into non-traditional economic activities and occupations, shows
rapid improvement in the market reform era in contrast to previous
decades. All the way to the bank, Indian Express, 14 August 2010
http://openlib.org/home/ila/MEDIA/2010/bank_licence.html
The RBI discussion paper on bank licences is a welcome
addition to policy thinking on banking. The need for new banks and
more competition in banking is apparent. After 1993, RBI has mostly
blocked entry into banking. After the Finance Minister's budget
speech announcement that RBI would be giving licences for entry of
new banks into the sector, RBI must have been under tremendous
pressure both from industrial houses and non bank financial
intermediaries keen on opening banks. The response to this has been
the correct one. Let us discuss the pros and cons of opening entry
into banking, and debate how to mitigate the risks. Putting forth
its concerns without recommending what should be done, and leaving
the issue open to debate, is particularly welcome in the period
after the global crisis which has shown the world how interdependent
and integrated financial institutions become and a few bad and
unscrpulous players can pose risks to the system. Let us talk about inflation, Indian Express, 9 August 2010
http://openlib.org/home/ila/MEDIA/2010/inflation_targeting.html
Reserve Bank Governor D. Subbarao has argued that
inflation targeting by the RBI is not desirable or practical in
India. With inflation running high, India would have been better
served if the RBI governor had said precisely the opposite. The
country needed to hear him say that inflation control was the
“dharma” of the RBI. This is a time when inflationary expectations
need to be anchored, when the country needs to have confidence that
something can be done about inflation, and that the RBI will use all
the instruments it has to bring inflation down. Behind the curve, Financial Express, 24 July 2010
http://openlib.org/home/ila/MEDIA/2010/fe_bc.html
The RBI's credit policy is due later this month. The
lastest data for industrial production and prices released in the
July will make the RBI's policy dilemma worse. Industrial production
declined in May while core inflation rose sharply. No simple
prescription for monetary policy is applicable in such a
situation. The Mauritius code, Indian Express, 12 July 2010
http://openlib.org/home/ila/MEDIA/2010/residence_tax.html
The bulk of foreign investment in India comes through
Mauritius. The Double Tax Avoidance Agreement between India and
Mauritius allows investors to avoid paying taxes to Indian
authorities. The original draft of the proposed Direct Tax Code
(DTC) had proposed over-riding the DTAA with Mauritius. However, now
revised DTC has dropped this plan. The Mauritius tax treaty is an
odd one and needs to be reconsidered. But this is only politically
feasible when it is one component of a larger movement by India
towards sensible tax treaties with major countries. Transmission lines, Indian Express, 26 July 2010
http://openlib.org/home/ila/MEDIA/2010/transmission.html
The next credit policy announcement will be made on
29th July. RBI is expected to raise interest rates again as
inflation did not come down as expected. While food inflation did
decline as predicted, the culprit this time is the rise in non-food,
non-fuel inflation. This measure of inflation is sometimes referred
to as "core" inflation, or the inflation rate that can be impacted
by monetary policy and the one that predicts headline inflation. If
the decline in food inflation had done the job of bringing inflation
down, it might have been sufficient to have blamed inflation on food
shortages, the drought and sugar policy, but the rise in non-food,
non-fuel inflation is a serious issue. Unless this is brought down
there is a danger of kicking off a spiral of
inflation. Capital controls and unhedged currency exposure ammong Indian
firms, India Policy Forum, 29 June 2010
http://www.indiapolicyforum.org/node/23
Currency mismatches have devastated corporate balance
sheets in many countries, and thus precipitated macroeconomic
crises. How can these be avoided? The Indian evidence shows that an
elaborate system of capital controls did not prevent firms from
taking on unhedged currency exposure when they desired it. A
macroeconomic environment with a flexible exchange rate is the key
to reshaping the incentives of firms and thus avoiding
crisis. Gaining Currency, Indian Express, 24 June 2010
http://openlib.org/home/ila/MEDIA/2010/yuan2010.html
China claims it has moved to a more flexible exchange
rate. The People's Bank of China announced its intention of moving
towards a more flexible exchange rate regime by allowing the yuan to
move within a band against a basket of currencies of its major
trading partners. This week, the yuan has appreciated, sending a
signal that China is serious about the announced change. The change
in policy has come after mounting pressure from the US. It comes
just before the G20 Toronto weekend meeting. The move will not only
reduce the political pressure on China, it will take away the G7's
bogeyman for the financial crisis. The G20 meet will now have to
focus on internal issues of fiscal stimulus, its withdrawl and
public debt instead of the Chinese exchange rate
regime. Future's rupees, Indian Express, 5 June 2010
http://openlib.org/home/ila/MEDIA/2010/re_vol.html
In the last one month the rupee depreciated from 44.3
to 47 rupees to a dollar. Every time an administered rate mechanism
is dismantled, there is a transition period where firms have to
learn how to deal with price fluctuations. As India witnesses two
way movements of the exchange rate, and higher volatility of the
rupee dollar rate, firms will adapt themselves and become more
resilient. RBI needs the nerve to not flinch in this period, of
learning how to live with a genuniely market determined exchange
rate. Really, the heat is'nt on, Financial Express, 22 May
2010
http://openlib.org/home/ila/MEDIA/2010/fe_heat.html
The Indian economy has witnessed a sharp increase in
output and prices after the global recession. Month after month for
nearly ten to twelve months now, there have been reports of high and
rising growth rates of industrial production and prices. This has
led to the belief that the Indian economy has been overheating. We
now look at the latest monthly data to examine whether the trend of
rising growth rates will continue in coming months or will
falter. Seasonally adjusted month on month data for both industrial
production and prices suggest that growth and inflation is going to
stablize in coming months. BSST in class, Indian Express, 24 May 2010
http://openlib.org/home/ila/MEDIA/2010/bsst.html
Comparisons among BRIC countries has become a
norm. However, when thinking about policy analysis, this is not the
best set of countries for India to compare with. The legal framework
and governance characteristics of Brazil, South Korea, South Africa
and Turkey (the BSST countries), are much closer to those seen in
India, and hence we should be using these four countries much more
in policy comparisons. Ila Patnaik
http://openlib.org/home/ila
What's new on my home pageen-usSoon there will be one, Indian Express, 3 May 2010
http://openlib.org/home/ila/MEDIA/2010/super_regulator.html
On the issue of unit linked insurance plans (ULIPs)and
their regulation by SEBI (Securities and Exchange Board of India) or
IRDA (Insurance Regulatory and Development Authority), the Supreme
Court has remarked, "Why not appoint a super regulator." This is a
crucial point and in the long run India needs to move towards
unification of all financial regulation into one agency. But there
are reasons for not undertaking this integration right now. However,
it is necessary to have better coordination among regulators, reduce
the number of agencies, and streamline the role and function of
regulators. The tasks of financial regulation in India are spread
across an alphabet soup of agencies: SEBI, IRDA, FMC, PFRDA, RBI,
DCA, etc. In many cases (Forward Markets Commission, Reserve Bank of
India, Department of Company Affairs), these functions are defined
by legislation drafted many decades ago, when financial markets were
unrecognisably different. Bureaucrats have shied away from “treading
on turf”, so even reform proposals have avoided taking functions
away from an existing regulator. It is either inflation or exchange rate, Financial Express, 24 April 2010
http://openlib.org/home/ila/MEDIA/2010/fe_credit.html
RBI raised the repo, reverse repo and the CRR by 25
basis points each. With this the RBI has given a clear indication to
markets that it will not tolerate higher inflation. However, if
RBI's actions on the currency market are inconsistent with tighter
monetary policy, this policy move will not be successful in
controlling inflation. Appreciate the positive, Indian Express, 12 April 2010
http://openlib.org/home/ila/MEDIA/2010/appreciate.html
After many months of staying away from currency
intervention, RBI made headlines last week when it returned to the
foreign exchange market to prevent rupee appreciation. The
consequences of foreign exchange intervention by the RBI will create
difficulties for monetary policy, especially because inflation is
high, the government borrowing program is large, and growth is in
recovery phase. In a recent speech Manmohan Singh said that the RBI
should focus on inflation control. In policy action terms this
requires RBI to stay away from currency markets. The living debt, Indian Express, 1 April 2010
http://openlib.org/home/ila/MEDIA/2010/frbm2.html
The size of public debt is one of the biggest
challanges facing the Indian government today. There is a danger
that we draw comparisons with the US, UK and some European countries
and get lulled into complacency about the large fiscal deficits we
are running. We can also get into endless arguments about how much
the deficit matters for inflation, interest rates or crowding out of
private investment. This is a risk we must avoid. Implementation of
the FRBM-II and an independent fiscal council must be given top
priority. Rates of little return, Indian Express, 18 March 2010
http://openlib.org/home/ila/MEDIA/2010/inflation_2010.html
The sharp rise in inflation to 10 percent is a cause
for concern. Headline inflation will get worse for a few weeks and
then it will decline. Policy makers have to keep that in mind before
raising interest rates. RBI's policy mix is mostly on the right
track. The four fold promise, Indian Express, 27 February 2010
http://openlib.org/home/ila/MEDIA/2010/budgetspeech2010.html
Finance Minister Pranab Mukherjee delivered more in
Budget 2010 than was expected. It was a challenging job to roll back
the stimulus in small and calibrated manner, as well as lower the
fiscal deficit significantly. But, the FM delivered more than this
tight-rope balancing act. He laid out a big picture of fiscal
consolidation by reducing government debt, as recommended by the
Thirteenth Finance Commission. He promised that the Direct Tax Code
and the Goods and Services Tax will be implemented from April 1,
2011. These would be vital ingredients in allowing the government to
meet its fiscal consolidation targets. Expenditure reform, Financial Express, 21 February 2010
http://openlib.org/home/ila/MEDIA/2010/fe_expenditure.html
Budget 2010 will be the first UPA budget not
constrained by the Left or by prospects of a recession. The Finance
Minister's constraint this time is the size of the fiscal
deficit. With some disinvestment, with growth in industry and tax
revenue and without the pressure to spend more for a fiscal stimulus
Pranab Mukerjee should be able to bring the fiscal deficit in
control. In addition, he must outline a road map for bringing the
fiscal deficit back on track to FRBM targets. This would increase
the confidence of investors and help create an environment for
sustainable growth. Devil is in the roadmap, Indian Express, 19 February 2010
http://openlib.org/home/ila/MEDIA/2010/roadmap.html
Budget 2010 will be the first budget of a new
decade. In the last decade India grew fast, much faster than we
expected. But it globalised even faster. A rapidly growing and
globalising economy faces many new challenges. Many of these have
unfolded over the last decade. There is an overwhelming sense, both
in India and abroad, that the next decade will bring even higher
growth and a more radical transformation of India. The budget speech
for 2010 should use this opportunity to present the government's
vision of India in the next decade, and along with it, the fiscal,
financial and monetary policy reforms that are required to meet the
unique challenges of this decade. This should include specific
actions on fiscal consolidation, achieving a mature financial
system, creating an independent and accountable monetary authority,
and a framework for maintaining financial stability. The budget
speech should outline a road map for the implementation of the
Direct Tax Code and the Goods and Services Tax. Finally, it should
embark on radical reform of government expenditure, moving away from
existing strategy of spending more on government programs that do
not work, to one focused on outcomes, impact, accountability and
bang-for-the-buck. Reading the recovery, Indian Express, 3 February 2010
http://openlib.org/home/ila/MEDIA/2010/reading_recovery.html
Last week RBI announced its credit policy. Later this
month, Finance Minister, Pranab Mukherjee, will announce the Union
Budget. The withdrawal of the monetary stimulus has been limited to
reversing some of the steps taken after the global financial crisis
hit India. The steps taken in the credit policy announcement of last
week were not harsh. They indicate that the withdrawal of the fiscal
stimulus is also likely to be cautious. Sharp hikes in tax rates are
not likely. Some expenditure reduction will happen and the fiscal
deficit number should be lower. Too early to signal an exit, Indian Express, 19 January 2010
http://openlib.org/home/ila/MEDIA/2010/exit_stimulus.html
The Indian economy has been showing strong growth in
production. Both industrial production and non-agricultural GDP
growth have exceeded expectations. Yet, there are reasons for
concern. Apart from the runaway food price inflation, other leading
indicators of the business cycle do not appear to be strong. These
include growth in non-oil import, bank credit and investment
projects. These suggest that policy makers should not become
complacent yet, despite the high production figures. In other words,
when food become too expensive and consumers are buying cars, it is
not a time to say all is well. Bihar's Big-thinking Babu, Indian Express, 16 January
2010
http://openlib.org/home/ila/MEDIA/2010/nk_singh.html
For most of his life, N K Singh was a very successful
bureaucrat. Today, he is a member of the Rajya Sabha and through
that he continues to participate in the policy making process. In
addition, he advises Nitish Kumar on India's hardest problems in one
of the most difficult states to govern, Bihar. Along the way, he
also writes thoughtful columns. Given his unique background,
knowledge and perspective, it is always interesting and important to
reflect on what he says. Lapping up liquidity, Indian Express, 4 January 2010
http://openlib.org/home/ila/MEDIA/2010/lapping_liquidity.html
The consensus on food price rise in the government
appears to be moving towards the view that this is not a problem
that interest rate hikes can solve. At the same time there are
expectations in financial markets that the RBI will tighten monetary
policy. What should the RBI do, if it needs to be seen doing
something, but does not want to hurt growth? Its best option is to
announce an increase in the cash reserve ratio by 1 percentage point
in two to three steps to take place over the next couple of
months. To hell and back, Financial Express, 27 December 2009
http://openlib.org/home/ila/MEDIA/2009/fe_to_hell.html
The last 12 months have been a period of huge
uncertaintly all over the world. At the beginning of the year, the
world appeared to be at the brink of collapsing into a long and deep
recession. The journey to hell and back, has been one where,
governments and central banks all over the world took huge risks
with unconventional measures, but in the end, it seems, managed to
avert the terrible crisis that could have resulted. While it can be
argued that the problems have primarily been postponed, we can
surely say that 2009 was not as bad as we feared. Not for India, at
least. There are no easy answers, Indian Express, 18 December 2009
http://openlib.org/home/ila/MEDIA/2009/easy_answers.html
Higher inflation figures have once again turned the
spotlight on interest rates. Should RBI tighten monetary policy?
While inflation is a concern, there are other issues that could
influence RBI's decision. The increase in the dependence of the
commercial sector on non-bank finance and the probability of higher
capital inflows in a world where in most countries monetary
tightening has not yet started, are likely to be among RBI's major
concerns. Morover, the economy continues to operate with
considerable slack and it is not clear that now is the optimal time
for the pushing down aggregate demand through tighter monetary
policy. While small signalling changes can be made, it would be
risky to take steps towards seriously tightening monetary
policy. Shifting gears, Financial Express, 7 December 2009
http://openlib.org/home/ila/MEDIA/2009/shifting_gears.html
A few days ago the media and markets were very excited
about growth in sales of automobiles. The year on year growth of
passenger cars rose to nearly 30 percent in november. In other
words, compared to November last year, 2008, which had witnessed a
very sharp decline in passenger car sales, there is healthy
growth. As seen in Figure 1 (car_sales_yoy), when looking at the
year on year numbers, it appears as if growth in passenger car sales
have been steadily increasing. Tobin tax is only for textbooks, Financial Express, 21 November 2009
http://openlib.org/home/ila/MEDIA/2009/tobin_tax.html
Finance Minister Pranab Mukherjee has laid to rest
speculation about India imposing capital controls in the face of
rising capital inflows. In a recent statement, he clearly said that
while the government would monitor the inflows, India is not
planning to impose restrictions on capital inflows in the near
future. Seasoning the stock, Indian Express, 18 November 2009
http://openlib.org/home/ila/MEDIA/2009/disinvest.html
The sale of shares of upto 60 public sector enterprises
by the central goverment will have many advantages. Not only will
the money raised bring down the fiscal deficit, there will be
additional benefits arising from partial privatisation. Though the
objective of the government seems to be primarily to bring its
deficit under control, the disinvestment, especially of PSUs that
are not yet listed on the stock exchange, could improve performance,
corporate governance and investment by these companies. Selling 10
percent will lay down the foundations for price discovery and make
the market ready for further sales of shares. Pick apart this myth, Indian Express, 4 November 2009
http://openlib.org/home/ila/MEDIA/2009/bank_nationalisation.html
Hindutva supporters make claims about how many of the
technological advances of the West were known in Ancient India. Bank
nationalisation by Indira Gandhi is acquiring a similar status
today. The West, it is claimed, is now trying to make its financial
system safe by embracing bank nationalisation. This narrative claims
that our wise sages knew this all along. We anticipated meltdowns
like those of 2008 and nationalised our private banks much ahead of
time in 1969. Mrs G and the licence permit raj, Financial Express, 2 November 2009
http://openlib.org/home/ila/MEDIA/2009/indira_gandhi.html
The most striking move by Indira Gandhi, before the
declaration of the emergency, was a mid-night ordinance in July
1969. At one stroke, the ordinance gave the government control over
a big chunk of the savings of the Indian people. On July 19, 1969,
India woke up to headlines that India’s major private sector banks
had been nationalised. That stroke of midnight brought a loss of
freedom, economic freedom. Like much of the economic policy of the
1969-1976 period, this was one more instance of power being usurped
by the state. From 1969, Indira Gandhi turned left seeking political
support, and India witnessed an unprecedented increase in control
raj. Through the seventies, till the end of the emergency, economic
enterprise and private initiative were severely
restricted. Green roots of recovery, Indian Express, 15 October 2009
http://openlib.org/home/ila/MEDIA/2009/green_roots.html
Recent data on industrial production looks good and has
encouraged suggestions that monetary policy can now be reversed. The
data on exports, on the other hand, looks bad, and has led to media
reports on how rupee appreciation needs to be prevented. Both data
releases, which compare today to the pre-global financial crisis
months, give wrong signals. Policy changes arising from ignoring the
intevening months would be a mistake. More importantly, looking
ahead, in the changed environment after the financial crisis, India
needs to rethink its growth strategy. In the light of expected
demand conditions in world markets, Indian policy makers need to
focus on nurturing domestic markets. India needs a reversal of
policy away from subsiding exports towards reforms that support
faster growth of domestic markets. This is no time for rate hike, Financial Express, 9 October 2009
http://openlib.org/home/ila/MEDIA/2009/no_time_for_rate_hike.html
RBI Governor D Subbarao has hinted at a rate increase
sooner than that in developed countries. At the same time the
Reserve Bank of Australia raised interest rates. It is the first G20
country to have raised rates. The question this raises is whether
RBI will raise interest rates soon? The good news analysed better, Financial Express, 5 October 2009
http://openlib.org/home/ila/MEDIA/2009/pickup_story.html
Signs of recovery are visible in nearly all the macro
economic indicators that we monitor. Industrial production, imports,
exports and credit conditions have improved in the most recent
data. Valuing the dollar, Indian Express, 1 October 2009
http://openlib.org/home/ila/MEDIA/2009/dollar_weakens.html
The weakening of the US dollar in international markets
and stronger foreign capital flows to India in recent weeks suggest
that in the coming year the rupee could witness pressure to
appreciate. Allowing the rupee to appreciate could be a way out of
the policy dilemma of the RBI concerned about low growth and rising
inflation. Preventing appreciation could, on the other hand, lead to
either higher liquidity, if intervention is unsterilised, or to the
familiar difficulties of sterilisation. Conversation with Gautam Bhardwaj
http://openlib.org/home/ila/TV_SHOW/index.html
on pension reform on Policy with Patnaik
No one like us, Indian Express, 31 August 2009
http://openlib.org/home/ila/MEDIA/2009/lessons_india.html
In recent months many people have been heard saying
that the India escaped unscathed in the crisis, and that the world
should learn from India how to do financial sector regulation. In
fact, each time the global financial system experiences problems,
there is a resurgence of calls in India to block financial sector
development and capital account liberalisation. Policy makers take
pride in India's license-permit raj, through which, it is argued,
India was undisturbed through the crisis. This "let us block
development" chorus sprang up after the Asian crisis in 1997, and
has sprung up again after the global financial crisis in
2008. Conversation with Lant Pritchett
http://openlib.org/home/ila/TV_SHOW/index.html
on reform in secondary education on Policy with Patnaik
Conversation with Bibek Debroy
http://openlib.org/home/ila/TV_SHOW/index.html
on legal and police reform on Policy with Patnaik
Conversation with Raghuram Rajan
http://openlib.org/home/ila/TV_SHOW/index.html
on financial sector reform on Policy with Patnaik
On different scales, Indian Express, 17 August 2009
http://openlib.org/home/ila/MEDIA/2009/monetary_aug.html
Inflation has risen in recent weeks. Higher food prices are the biggest contributor to this rise. The rise in inflation raises a question on RBI's stance of monetary policy. Should interest rates be raised in response to higher food prices? The weak monsoon is likely to push up further prices of vegetables, dal and rice. Should the RBI respond by tightening monetary policy? I argue below that no amount of raising rates will bring vegetable prices down. Monetary policy, when effective, can impact prices and output 4 to 6 quarters later. The last thing to expect from it is impact on seasonally volatile prices in specific sectors. Conversation with Pratap Bhanu Mehta
http://openlib.org/home/ila/TV_SHOW/index.html
on policies on higher education on Policy with Patnaik
Find the side effects, Indian Express, 10 August 2009
http://openlib.org/home/ila/MEDIA/2009/nrega_health.html
A recent amendment to the NREGA includes working on
small and marginal farms as permitted activities under the
Act. There remains, however, a lot to be done in the sphere of
providing public goods in Indian villages. The most important public
good that needs urgent attention is rural sanitation. This should be
on the top of the priority list of the NREGS. Not only will this
fill part of the gap in the rural health policy, the NREGS is better
suited for this work than the myriad central government schemes that
have tried to address this issue. The good news on exports you did not know, Financial Express, 6 August 2009
http://openlib.org/home/ila/MEDIA/2009/exports_sa.html
Conversation with Aruna Roy and Nikhil Dey
http://openlib.org/home/ila/TV_SHOW/index.html
on NREGA and RTI on Policy with Patnaik
RBI has got to do it, Financial Express, 3 August 2009
http://openlib.org/home/ila/MEDIA/2009/demand_drivers.html
The sharp fall in external demand, the decline in investment demand, and the decline in corporate sales indicates that private demand has shrunk. This decrease in demand is unlikely to be offset by the 0.8 percent increase in fiscal deficit of the central government budgeted for 2009-10. Wait, watch the uncertainty, Indian Express, 27 July 2009
http://openlib.org/home/ila/MEDIA/2009/mon_pol_jul09.html
The RBI will announce its monetary policy this
week. While there has been talk about the RBI reversing its monetary
policy stance, and reasons why it should start tightening, to do so
now would be a mistake. It is too early to tighten. Real interest
rates remain high, uncertainly continues to prevail and investment
announcements have shown a dip, spelling bad news for the months
ahead. Further, consumer price inflation has slowed down in the last
quarter, despite some rise in food prices. The economy still faces a
shrinking world economy and inflation will not see a serious upsurge
as long as demand remains weak. Conversation with Ashok Gulati
http://www.tubaah.com/details.php?video_id=91026
Ashok Gulati talks to me about what plagues Indian
agricultural policies on Policy with Patnaik
Conversation with Jeff Hammer
http://www.tubaah.com/details.php?video_id=89192
Jeff Hammer talks to me about Indian health policy on Policy with Patnaik
Investment trends at the state level, Indian Express, 7 July 2009
http://openlib.org/home/ila/MEDIA/2009/state_investment.html
CMIE maintains a database of all investment projects under implementation in India. This is micro data (http://tinyurl.com/CMIECapex) where the information for every individual investment project is transparently visible. This infuses the database with greater trustworthiness. Every quarter, CMIE adds up the value of all projects under implementation in each state. The share of states in this data, observed from 1995 onwards with the latest reading pertaining to April/May/June 2009, yields valuable insights. The free fertiliser solution, Financial Express, 26 June 2009
http://openlib.org/home/ila/MEDIA/2009/fe_monsoon.html
A delay in the monsoon is always painful. This time it
has come at a time when the economy is already in the midst of a
slowdown. However, fortunately, in the last 15 years, the resilience
of the Indian economy to the monsoon has increased. A bad monsoon
today will, hopefully, not push the economy onto the brink of
disaster as it did in the past. Keep the Rupee rolling, Financial Express, 22 June 2009
http://openlib.org/home/ila/MEDIA/2009/revival.html
Capital flows are returning to India. The revival,
after the sudden stop witnessed last year, appears to be strong and
sharp. As market conditions in global financial markets have
improved, and confidence has returned to markets, India has started
witnessing a return to capital flows. The GST of it, Financial Express, 13 June 2009
http://openlib.org/home/ila/MEDIA/2009/gst.html
It has now been some years since the then Finance
Minister P Chidambaram had announced that India would implement a
full GST from 1 April 2010. Yet, even though we are less than a year
away from the date of implementation, there are a number of issues
that remain to be solved. These include (i) a consensus on the
implementation of the VAT and (ii) the implementation capacity of
the government to pull off this very large and complex reform of
India's tax system. Set the campus free, Indian Express, 2 June 2009
http://openlib.org/home/ila/MEDIA/2009/universities.html
Kapil Sibal, the new Minister for Human Resource
Development has his first task cut out for him. In his present
innings, Manmohan Singh needs to do to higher education what he did
to the economy and foreign policy in his earlier innings. For this,
the HRD minister needs to bring about a new policy framework for
higher education in India. Thousands of young Indians, unable to
find a decent university education in India, are flocking to
universities abroad. Of the multitude of students coming out of
schools, a substantial fraction want a university education. The
license raj in university education has stalled the growth in
university seats of even a minimum acceptable quality. The affluent
struggle to find the money to send their children to study abroad,
and the poor struggle to access the 10,000 seats at IIT. Sibal's
focus must be to create a policy framework whereby a large number of
high quality universities spring up. Mind that debt, Indian Express, 25 May 2009
http://openlib.org/home/ila/MEDIA/2009/fiscal_tightrope.html
The biggest challenge before Finance Minister Pranab
Mukherjee will be how to prevent a fiscal crisis. Economic reforms,
good governance, labor reforms and financial sector liberalisation
are policies where business as usual may not be the first best, but
it is possible to do nothing and go on as usual. On managing the
fiscal situation business as usual could result in a fiscal crisis,
a loss of confidence in the Indian government, capital flight and a
sharp depreciation of the rupee. With the debt to GDP ratio at 80
percent, with no credible framework for fiscal consolidation, with
the Fiscal Resposibility and Budgetary Management Act in tatters,
the fisc is today in a very precarious position. Pranab Mukherjee
has become Finance Minister when the world economy is in the wost
recession since Indian independence, when domestic industrial
production is falling, when exports are declining and when the RBI
seems to believe there is no need for a monetary stimulus. But even
if he were to provide no further stimulus, stabilizing the debt GDP
ratio is not going to be easy. What you must not do, ministers, Financial Express, 23 May 2009
http://openlib.org/home/ila/MEDIA/2009/fe_ministers.html
The Congress manifesto promises a large number of welfare programmes and schemes to help the poor. There are promises to expand the number of schemes, the scope of schemes and the expenditure on them. One way of doing what the party has promised would be to spend more money with business as usual. The approach towards implementation would be unchanged; the budgets and staffing would grow by 50%. This would protect vested interests, and it would not upset the bureaucracy. But it is a bad idea for India, and it will hurt the Congress in the next general election. The flexibility bonus, Financial Express, 11 May 2009
http://openlib.org/home/ila/MEDIA/2009/fe_china_exports.html
The sharp decline in demand from the US and the reduction in world trade have hit exports from both India and China. In February, exports from China measured in dollars declined by nearly 26 percent on a year on year basis. Exports improved slightly in March, perhaps thanks to export rebates given to 3,800 items, but remain a big source of concern, especially considering the decline of 9 percent in world trade predicted for 2009. The decline in exports from India is also worrisome. Starting October 2008, exports started declining. In year on year terms, the decline was 13 percent in dollar terms in October and 20 percent in November 2008. When exports fell by only 5.2 percent in dollar terms in the month of December, it appeared to suggest that the decline may have been due to the financial crisis, especially the difficulties being faced in financing trade credit. The situation on credit, however, eased as governments intervened actively. The bad news on exports was back with a bang in January '09 when exports declined by 16 percent. The situation worsened in February when they fell by 22 percent on a year on year basis and then worsened even further in March when in dollar terms exports from India were 33 percent lower compared to the previous year. Dated data, poor policy, Financial Express, 21 April 2009
http://openlib.org/home/ila/MEDIA/2009/fe_rbi_credit_policy.html
Will the RBI announce a cut in interest rates in its
credit policy announcement or will this policy also be a non-event
as have been the previous two policy announcements? A large number
of market participants expect that no significant monetary easing
will be announced. However, their expectations are based on looking
at year on year price data which says more about the past and less
about recent behaviour of prices. Retail therapy, Indian Express, 20 April 2009
http://openlib.org/home/ila/MEDIA/2009/sudden_stop.html
India is globalised today, her capital account defacto
open and financial markets tightly coupled with the rest of the
world, not as much because of foreign investors, the FIIs or foreign
banks, it is integrated with global financial markets owing even
more to the two hundred and fifty odd Indian companies who operate
abroad. Evidence, especially since September 2008, reveals that the
global financial crisis was transmitted rapidly to India primarily
through these companies. India's balance of payments, financial
markets, the exchange rate and money markets were impacted hugely by
the actions of India's multinationals. Now there are twenty, Indian Express, 4 April 2009
http://openlib.org/home/ila/MEDIA/2009/G20_april.html
The April 2, 2009 G20 Summit has got a positive reaction from markets and economists around the world. The main outcome of the Summit is a Communique which expresses the intentions of the leaders present. These included additional support to the IMF, blocking protectionism, regulation of credit rating agencies, expansionary monetary policy and international cooperation in improving international financial regulation. The communique goes after problems which were unrelated to the global crisis -- tax havens and hedge funds -- but this seems to have been caused by some negotiations between the Americans and the Europeans. Among the items that were important in today's crisis but missing from the Communique were fiscal expansion, questions about whether the dollar should remain a reserve currency and a coordinated attempt at cleaning up bank balance sheets. Like any such Communique, this one is also only the beginning of a long process of negotiations. However, if the leaders present are genuine about their intentions, then even though the outcome may be able to help the world out of the current crisis only to a limited extent, it will help in making the world a safer place in the future. Recipe for an investment shortfall, Financial Express, 16 March 2009
http://openlib.org/home/ila/MEDIA/2009/fe_drivers.html
Recent GDP growth numbers suggest that there has been a considerable slowdown in growth. So far a large part of the slowdown can be explained by the decline in world demand and the impact it has had on Indian exports. Looking forward the question of whether domestic demand can compensate for the near zero export growth remains to be answered. While India has had strong domestic demand, we see that this has mainly due to the sharp rise in private investment. Since private investment is driven by confidence, expectations and profit levels, we may see this decline sharply in the coming year. But will not the increase in public investment compensate for this decline and put Indian GDP growth back on track? The numbers are not very encouraging. It will be difficult for the government to compensate for the decline in private investment even assuming that household and corporate investment only go down to trend levels, and do not fall further. Twenty parts to a rescue, Indian Express, 14 March 2009
http://openlib.org/home/ila/MEDIA/2009/g20.html
The global nature of the present financial crisis has
made it difficult for any single country's policies to get the
country out of the crisis. In a situation in which a crisis hits a
single country it only has to make sure that its own finance and
banking is well regulated. It does not need to worry that poor
regulation in another country is going to put its own financial
system at risk. The complexity that has arisen out of the globalised
financial system has made it difficult for a single country's
policies to be effective. Sunlight on the ledger, Indian Express, 20 February 2009
http://openlib.org/home/ila/MEDIA/2009/dmo.html
The Central Government is slated to raise more debt in
the coming year than it has ever done in the past. It will borrow at
least Rs 3.3 lakh crore. The cost of this borrowing needs to be kept
low, the risks to the economy resulting from such large borrowing
should be minimised, and the credibility of the goverment
maintained. Fortunately, even before the ballooning of the deficit
this year, the government had already initiated work on finding ways
to handle its large borrowing needs. It must now speed up
implementation of a Debt Management Office, an initiative that takes
on even greater importance after the deficit estimates for the
coming fiscal year have been announced. When up is down, Financial Express, 9 February 2008
http://openlib.org/home/ila/MEDIA/2009/inflation_pop.html
The latest data on inflation says that prices rose by
more than 5 percent. In fact, data released last week showed an
inflation number higher than the previous week. Inflation had gone
up and this suggested that prices are on a rising trend. However,
this analysis is incorrect.
Give them credit, Indian Express, 9 February 2008
http://openlib.org/home/ila/MEDIA/2009/fsap_rbi.html
The RBI and the Government are expected to release a
report later this month which finds that the Indian financial system
is essentailly sound and resilient. Depsite being 2,600 pages long
and weighing 15 kilograms, the report will not carry with it the
weight of internationally accepted, independent, expert
opinion. Even if these conclusions were correct, the fact that the
government prevented independent experts from international bodies
and members of standard-setting bodies from participating in the
assessment exercise undermines the work, and sends out the wrong
signals. Governor's choice, Indian Express, 23 January 2008
http://openlib.org/home/ila/MEDIA/2009/creditJan09.html
RBI Governor D Subbarao will make his second credit
policy announcement on Tuesday, January 27th. After a series of
steps that helped greatly in easing the liquidity crunch that India
faced from the middle of September, market expectations about RBI's
actions have been largely met as RBI maintained adequate liquidity
in the system. However, today with bank lending rate cuts not
keeping pace with RBI rate cuts and credit not expanding as policy
makers might have hoped, what should Guv Subbarao do? In addition to
cutting rates further, he needs to initiate long pending reforms
that would improve the monetary policy transmission
mechanism. State of the blackboard, Indian Express, 13 January 2008
http://openlib.org/home/ila/MEDIA/2009/blackboard.html
In sixty years of post-independence India, we have
learned that the government is not a competent provider of
education. In the last 20 years, a diverse array of private
providers has sprung up, despite a hostile policy framework. It is
not the rich who send their children to the bulk of these schools,
the quality of a large number of which is highly
suspect. Innumerable lower middle class and poor parents across
rural and urban India, having lost hope at the lack of teachers and
teaching in government schools, send their children to these private
schools in the belief that the child would learn a little reading,
writing, arithmetic and English to enable him to get better jobs and
get ahead with life. Capital ideas, Indian Express, 5 January 2009
http://openlib.org/home/ila/MEDIA/2009/capital.html
The second stimulus package announced by the government
and another round of rate cuts by the RBI are steps in the right
direction and will help to ease the pain India will face in
2009. Since the crisis arose out of a crisis in finance, the focus
is, quite appropriately, on opening up channels for access to
finance. Fiscal space is limited, as seen in the Rs 20,000 crore
package that amounts to less than half a percent of GDP. Removing
interest rate ceilings for ECBs, increasing caps on FII investment
in bonds, easing of restrictions on borrowing for real estate,
reducing the repo, reverse repo and the CRR will increase the
availability and lower the cost of credit for companies. However,
while these measures will certainly help they may not be sufficient
to contain the slowdown. While there is little scope for further
fiscal action in the current fiscal year, there is need for action
on at least three fronts. These include further cutting interest
rates, immediate steps to develop the BCD nexus and further removal
of capital controls. Though the government has said that it does not
envisage any further measures in the current fiscal year, measures
such as these which do not impact the fisc can and should be
immediately implemented. Global economy: unknown to known, Financial Express, 22 December 2008
http://openlib.org/home/ila/MEDIA/2008/global_economy.html
From an Indian perspective, there are three key
indicators in tracking the global financial crisis. An examination
of these shows that while we are still away from conditions that
prevailed prior to the death of Lehman on 15 September, there has
been some improvements in conditions in the global financial
system. The fiscal and the meta-fiscal, Indian Express, 8 December 2008
http://openlib.org/home/ila/MEDIA/2008/meta_fiscal.html
The government has announced a big fiscal stimulus
package. In addition, RBI has taken further steps to reduce interest
rates and raise liquidity in the economy. This adds to the number of
steps the RBI has already taken to ensure adequate rupee
liquidity. However, the contribution that domestic monetary policy
can make in averting the slowdown is limited. Apart from the tax
cuts which will have immediate impact, fiscal policy is limited not
only by the size of the deficit, but even more by the capacity of
the government to spend quickly. Institutional investors, Financial Express, 24 November 2008
http://openlib.org/home/ila/MEDIA/2008/fii.html
Stock prices in India have seen a huge decline along
with the fall seen in stock markets all over the world. The world
environment has impacted India hugely and all theories of decoupling
of financial markets have been disproved. What has been the role of
foreign institutional investors in transmitting global sentiments to
India? There is a perception in the Indian media that FIIs play a
dominant role in price formation in India. But the data tells a
strikingly different story. Policy with Patnaik
http://openlib.org/home/ila/MISC/index.html
I am doing a weekly show on NDTV profit called "Policy
with Patnaik". It is shown on Saturdays at 7pm and repeated during
the week. On the show I chat with economists on policy issues. You
can watch the show at Videos.Keep the money moving, Indian Express, 17 November 2008
http://openlib.org/home/ila/MEDIA/2008/seven_steps.html
The RBI has announced yet another set of much needed
measures to boost liquidity and open up channels for credit
flow. RBI's steps on improving liquidity in recent weeks consitute
what has been perhaps the fastest response from Indian policy makers
seen in recent years. Yet, as the situation unfolds, these may not
be sufficient to help the economy adequately in coming months. There
are some issues that need urgent attention. Clear as liquid, Indian Express, 4 November 2008
http://openlib.org/home/ila/MEDIA/2008/clear_liquid.html
The package announced by RBI will go quite a way in
easing rupee liquidity in the coming days. Some of the damage done
owing to the credit policy announcement has been addressed. However,
if the global situation remains tight, further steps will be needed
to address the dollar liquidity problem and the consequences for
rupee liquidity. The RBI needs to change its communication strategy,
it needs to reform the operating procedure of monetary policy and it
needs to change its currency policy. The world is what it is, Indian Express, 21 October 2008
http://openlib.org/home/ila/MEDIA/2008/writeup_APS.html
RBI's interest rate cut is among the many steps Indian
policy makers need to take to reduce the impact of the global crisis
on India. The global crisis has hit India at lightening
speed. Governments across the world are trying to minimize the
dislocation the financial crisis is causing to their economies. The
Indian goverment has been reponding fast. It must now look forward
and take steps to minimise the potential damage to the
economy. Let the rupee be, Indian Express, 13 October 2008
http://openlib.org/home/ila/MEDIA/2008/let_the_rupee_be.html
The rupee has depreciated sharply in the last one
month. In the coming days it is likely that the pressure on the
rupee to depreciate remains high. Should the rupee be allowed to
find its own level or should the RBI intervene to prevent rupee
depreciation? Should the possiblity of importing inflation, when
inflation is already a matter of concern, mean that the RBI should
sell dollars to prevent the rupee from weakening further? I argue
below that this would be a bad idea. The RBI should not sell its
dollar reserves. The safest path is to let the rupee float, and to
take steps to strengthen the currency futures market. An agenda for difficult times, Indian Express, 30 September 2008
http://openlib.org/home/ila/MEDIA/2008/agenda_difficult.html
The financial crisis in the US has created ripple
effects all around the world. As a result of our globalisation, in
India too, we have seen the impact of this crisis at various
levels. Stock prices have declined, foreign investors have pulled
money out of India, the rupee has depreciated, and business
confidence has slipped. Capital flows into India are today being
affected by credit market conditions and stock market volatility in
the US and global business cycle conditions. Hope it will float, Indian Express, 8 September 2008
http://openlib.org/home/ila/MEDIA/2008/rupee_float.html
The Indian rupee has continued to depreciate over the
last few days. It is paradoxical that even though a weak rupee
increases domestic prices when inflation is already hurting badly,
neither the media reaction to the weak rupee, nor the policy effort
to prevent rupee depreciation matches the kind of response India saw
last year when the rupee was appreciation. Remember that on balance
we import more than we export. As a consequence, even if one were to
narrowly think of exporters and importers, the losses from a weaker
rupee are larger than the losses from a stronger
rupee. Tubulent times, Dr Subbarao, Financial Express, 2 September 2008
http://openlib.org/home/ila/MEDIA/2008/fe_new_rbigov.html
The appointment of Dr Subbarao as the new Governor of
the Reserve Bank of India should pave the way for financial sector
and monetary policy reform. As its governor, Dr Subbarao will be
leading the RBI at a time when the Indian economy is integrating
with the world faster than it ever has. Over the next three years
his biggest challenge will be to provide an enviroment and a
regulatory framework that encourages and facilitates India's
globalisation. The Thursday syndrome, Indian Express, 21 August 2008
http://openlib.org/home/ila/MEDIA/2008/early_warning.html
The sharp increase in inflation in recent weeks has
come as a surprise to both the government and observers of the
Indian economy. Better methods for carefully watching inflation
numbers could help give us early warnings of inflation. A more
careful analysis reveals that early warings of inflation were
available in January 2008. Pricing the rupee, Indian Express, 28 July 2008
http://openlib.org/home/ila/MEDIA/2008/pricing_rupee.html
The Congress government, with the Left off its back, is
now expected to undertake economic reforms. Among other things,
these reforms include modernisation of the financial sector,
institutional change in elementary and higher education,
privatisation, etc. These efforts will influence the investment
climate, and thus the well being of voters in the weeks leading up
to the elections. One reform needed both for the long term and for
its short term effect is a change in the monetary policy
framework. For the long term perspective, both the Percy Mistry and
the Raghuram Rajan committee have recommended this reform. But in
the short term, it will help by combating inflation. In the balance, Financial Express, 8 July 2008
http://openlib.org/home/ila/MEDIA/2008/fe_in_the_balance.html
Net capital flows into India were positive and strong
in January-March 2008. In contrast to popular perception, this was
not on account of high portfolio flows into India. Indeed, the data
shows that this was a time when there were portfolio outflows from
India. Central bank misrules, Indian Express, 3 July 2008
http://openlib.org/home/ila/MEDIA/2008/central_bank_misrules.html
The double barreled attack on inflation is more
posturing than good economic policy. In the last four years
preventing rupee appreciation and risking high inflation was a
policy choice made by the government and RBI. Today's inflation is
the natural consequence of this political choice. Fire fighting
inflation with sharp hikes in interest rates will now do more harm
than good. What is needed is long term reform. Shoot inflation, spare growth, Financial Express, 21 June 2008
http://openlib.org/home/ila/MEDIA/2008/fe_shoot_inflation.html
Inflation is up to a shocking 11% level. At the same
time, the picture on output growth is daunting. Industrial
production in India has been slowing down since the third quarter of
2007. Data for April, released last week, shows that growth in the
Index of Industrial Production at 7.02 per cent continued to remain
in single digits. What price people, Indian Express, 13 June 2008
http://openlib.org/home/ila/MEDIA/2008/what_price_people.html
RBI has hiked the repo rate to 8 per cent in an attempt
to reduce inflation. Year on year IIP growth has deteriorated from
October 2007 onwards, with a latest data point at 7 per cent for
April 2008. There has been a substantial change in monetary policy
from October 2007 onwards. Until then, RBI was pumping liquidity
into the system by purchasing dollars and then sucking it out by
selling government bonds: in this configuration, the government was
bearing the cost of subsidising exporters with a pegged rupee-dollar
rate. From October 2007, RBI seems to have placed the costs of the
exchange rate pegging on banks, households and industry by
increasing the cash reserve ratio of banks. The Plan expenditure fixation, Financial Express, 29 February
2008
http://openlib.org/home/ila/MEDIA/2008/plan_expenditure.html
Two holy cows are prominent in Indian debates about
government expenditure. It is felt that capital expenditure by the
government is desirable or essential to high GDP growth. It is felt
that `plan expenditure' is somehow good and desirable, while
`non-plan expenditure' is not "development-oriented" , is unworthy,
and needs to be kept down. Both these propositions do not hold up to
scrutiny. This has important implications for the future evolution
of the FRBM. No free lunches here, Indian Express, 28 February
2008
http://openlib.org/home/ila/MEDIA/2008/interest_payments.html
One of the biggest concerns about Budget 2008 is that
the UPA might decide to do a big borrow and spend budget. As
reported in the Indian Express, an AICC think tank headed by
Veerappa Moily has asked the government to postpone FRBM targets by
three years. The logic given is that the government needs to spend
more in a year that will see some state elections and that will be
followed by general elections. This development is disturbing given
that off budget subsidies like food, fertiliser and oil bonds have
already been kept out of the ambit of the FRBM. A recent IMF study
pointed out that there has been no fiscal consolidation under the
UPA. After taking off budget subsidies into account, the central
government deficit has been at 4.5 percent for the last three
years. Understatement is not a virtue, Indian Express, 26 February 2008
http://openlib.org/home/ila/MEDIA/2008/fiscal_deficit.html
The UPA government has been claiming that it has done
well on fiscal consolidation. But there is a difference between
appearances and reality. Off balance sheet items have meant
effectively larger budget deficits than the magnitudes talked about
in the discussion on FRBM. Home is where the dollar goes, Indian Express, 14 February 2008
http://openlib.org/home/ila/MEDIA/2008/story_remit.html
Indians living abroad send dollars into India in two
ways. One, through NRI deposits, and second, and more importantly,
through private transfers. Private transfers, also called
remittances, which show up on the current account of the balance of
payments, have witnessed a sudden increase in recent months. Private
transfers coming into India between July to September 2007 were USD
10.1 billion. Inflows on account of net private transfers were next
in magnitude to net inflows due to the portfolio investments by FIIs
which were only slightly higher than private transfers at USD 10.9
billion. Private transfers generally consist of money sent by Indian
workers to their families in India. Bankers without borders, Indian Express, 9 February 2008
http://openlib.org/home/ila/MEDIA/2008/bankers_borders.html
The present RBI leadership is clearly finding it
increasingly difficult to cope with the fast pace of India's
financial globalisation. In its attempts to keep up with the
challenges of India's financial globalisation, the RBI has failed to
create a consistent framework for monetary and exchange rate
policies. This difficulty has been highlighted through a series of
contradictory measures it has taken over the last two
years. How to be ordinary, Indian Express, 29 January 2008
http://openlib.org/home/ila/MEDIA/2008/credit_jan08.html
Recent data from the US and world markets suggests that
2008 may see a slowdown in the US and the global economy. This is
the biggest risk that India faces today. In preceding decades, the
biggest risk to the Indian economy was a bad monsoon. Agriculture is
just 18% of GDP, and less than half of it is rain-fed. The world
provides a much larger share of demand for goods and services than
it ever did. ever did in the past; India is more linked to the world
economy than before. If the world is going to face a slowdown, so
will we. Fewer degrees of freedom, Financial Express, 29 January 2008
http://openlib.org/home/ila/MEDIA/2008/fe_credit_policy_jan08.html
Today, RBI Governor Y.V. Reddy will unveil the credit
policy for the rest of 2007-08. His mandate is to balance the
objectives of maintaining growth and controlling inflation. Growth
is high but at risk, given a possible global slowdown. Inflation is
under control but at risk due to the growing liquidity in the system
due to RBI's forex intervention. If politicians prevent Dr Reddy
from controlling inflation through rupee appreciation, then his
choice is actually quite simple. The objectives of supporting
domestic demand and containing liquidity can both be achieved by
cutting interest rates. It is the easy option - both households and
firms will like it. And we all fall down, Indian Express, 22 January 2008
http://openlib.org/home/ila/MEDIA/2008/us_stock_woes.html
Data on the US economy shows job losses and indicates
that a recession may be on its way. A statement by Ben Bernanke, the
Chairman of the US Federal Reserve Bank indicates that there may be
further trouble in the US economy in 2008. Cut rates now, Indian Express, 17 January 2008
http://openlib.org/home/ila/MEDIA/2008/cut_interest_rate.html
The latest data for industrial production shows a
slowdown in growth. Industrial production grew by merely 5.3 percent
in November 2007 over the same month last year. In November 2006
industrial growth was much higher at 16 percent. These numbers are
for one month only, and do not indicate that there is a general
slowdown in the Indian economy. But if we look at other indicators
as well we find that the picture today is quite different from last
year. In 2007, discussion about the Indian economy was focused on
whether the economy was overheating. Overheating refers to high
inflation rates with high capacity utilisation backed by high credit
growth. It is a situation when it looks like the demand is growing
faster than what the economy is capable of producing. Last year,
when growth and inflation were both high, the discussion about
overheating shaped policy debates. However, standing in January 2008
the picuture looks quite diferent. Do capital controls work?, Indian Express, 8 Janaury 2008
http://openlib.org/home/ila/MEDIA/2008/do_capital_controls_work.html
India has witnessed a capital surge in recent
months. Even though there was a reversal of reforms on several
fronts with the re-introduction of capital controls, there was a
$17.4 billion increase in net capital flows in the Jul-Sep quarter
when compared with the previous one. India is too integrated into
the world economy, today, for capital controls to be brought
back. The case for cutting rates, Financial Express, 28 December 2007
http://openlib.org/home/ila/MEDIA/2007/fe_cut_rate.html
The RBI should cut interest rates in the next credit policy announcement. Both the repo and the reverse repo rates should be cut. There are a number of good reasons to do this. First, the government wants to prevent rupee appreciation. Internationally, rates have been cut, which is putting further pressure on the rupee. Restrictions on the capital account have failed to prevent rupee appreciation. Second, the Indian business cycle may see a downturn with the slowing down of the US economy. A countercylical policy requires a pre-emptive reduction in interest rates. Third, the present policy of keeping interest rates high and trying to prevent rupee appreciation is actually more inflationary than cutting rates would be. The RBI should indicate to the market what it will be doing in the credit policy and not leave everybody guessing. RBI must do a Fed, Indian Express, 14 December 2007
http://openlib.org/home/ila/MEDIA/2007/time_to_cut_rate.html
Earlier this week, the US Federal Reserve Bank cut the Fed's benchmark interest rate for the third time since September. The rate cut signaled the Fed's concern about a slowdown in the US economy. For India this may lead to greater capital inflows. With expectations of a global slowdown, and high interest rate differentials that make India an attractive investment destination, this could lead to further pressure on the rupee to appreciate. Global rebalancing, Financial Express, 30 November 2007
http://openlib.org/home/ila/MEDIA/2007/global_rebalancing.html
Major developments are underway in the world
economy. The long-awaited `global rebalancing' is, finally,
underway. As expected, this has created a number of difficulties in
the US economy. The US is likely to have below-trend growth in both
2007 and 2008. It is very likely that the US Fed will cut rates, but
this could well accentuate US inflation, creating a stagflationary
environment. The US slowdown will, no doubt, exert a drag on the
world economy, including India. With the US adjustment having
commenced, the key question is now about what will happen in
China. Oiling the economy, Indian Express, 26 November 2007
http://openlib.org/home/ila/MEDIA/2007/oil_at_hundred.html
As the price of crude oil inches towards $100 a barrel,
a Group of Ministers will debate whether India should raise domestic
petroleum prices. While Planning Commission Deputy Chairman Montek
Singh Ahluwalia has indicated that petroleum product prices in India
need to rise, Petroleum minister Murli Deora informed parliament
that "the government, under the instruction from the UPA
chairperson, is not proposing any fuel price
increase". Aam aadmi in the hot seat, Indian Express, 16 November 2007
http://openlib.org/home/ila/MEDIA/2007/story_tradables.html
Is inflation now comfortably under control? Recent media headlines
say that there has been a sharp drop in the inflation rate based
on the Wholesale Price Index to below 3 per cent. It is suggested
that tight monetary policies have been effective in bringing down
inflation to within RBI's comfort zone. A closer look at the data
however leads us to question both propositions. First, inflation
is not in comfort zone: consumer prices continue to show a rising
trend. Second, monetary policy has not been tight: large purchases
of foreign exchange by RBI have raised money supply
growth. Further, there is empirical evidence of a link between
money supply and consumer prices. Bringing consumer inflation
under control will require shifting away from the policy to
preventing an appreciation of the rupee/dollar
rate. Surge and the rupee, Indian Express, 6 November 2007
http://openlib.org/home/ila/MEDIA/2007/fed_cuts_rate_again.html
The US Federal Reserve decided to cut interest rates once again in its
meeting this week. Last month when the Fed cut rates, it led to a
surge of capital flows into India. In the 6 weeks since the last Fed
rate cut, portfolio investment of USD 8.7 billion flowed into the
Indian stock market. A higher interest rate differential combined with
India's growth story will mean that India will remain an attractive
investment destination for global investors. A major concern arising
from the surge in capital flows is the pressure on the rupee to
appreciate. There has been immense pressure on the government to keep
the rupee cheap. The government has tried to do three things: buying
dollars in the foreign exchange market, imposing restrictions on
capital inflows and liberalising capital outflows. If we look on a day
to day basis, it may seem that the policy has had some success, but a
longer term perspective suggests that it may have actually exacerbated
the problem of capital surge that we face today.
The fuss about credit policy, Indian Express, 30 October 2007
http://openlib.org/home/ila/MEDIA/2007/oct07_monetary_policy.html
The monetary policy announcement for the coming quarter will take
place amidst great confusion about what RBI is trying to
achieve. Going by the WPI, inflation is under control, and it looks
like there is no difficulty. But going by the more important CPI,
because that is what affects households, inflation has risen above 7%
and needs to be urgently restricted. RBI could eloquently preach the
case for tightening monetary policy to combat the CPI, or it could
point to the WPI and do nothing. But if RBI were honest, it would
admit that as long as it has to focus on the rupee dollar rate it has
little autonomous decision making power on monetary policy.