In thinking of protectionism, the Great Depression, the Great Recession, and what might come next, here are two interesting angles.Governments with their backs against the wall Ideally, stabilisation using monetary and fiscal policy, alongside actions by the private sector, should restrain the decline in consumption, and yield conditions which are not too harsh for households. At the time of the Great Depression, much less was known of economics. Pegging the currency to gold meant giving up monetary policy autonomy; the US Fed...
Monday, 28 December 2009
Saturday, 26 December 2009
Howard Davies was a deputy governor of the Bank of England, and the first head of the UK FSA. He is one of the world's leading thinkers on financial regulation and monetary policy, and one of the people who combines skills in both finance and monetary economics. In a recent article, he focuses on the five interesting questions about central banks and asset prices. Everyone interested in monetary policy today needs to ask themselves these five questions.Q1: Should central banks target asset prices? Davies points out that the...
Tuesday, 22 December 2009
Tim Harford in the Financial Times on the skepticism about the extent to which microfinance matters. London's attempts at turning away international finance: from the Economist, and Mint. Also see this piece from the Economist. M. R. Madhavan in Financial Express on the ineffectiveness of the UPA in translating Parliament time into economic reform. Michael Pomerleano on financial stability reform proposals. An idea from Ila Patnaik has popped up again. Sabrina Tavernise in the New York Times, on Syed...
Monday, 21 December 2009
The 13th finance commission has released the report of the task force on the GST. Here are some responses: Let's design a good GST, an editorial in the Economic Times. The Economist. M. K. Venu in Indian Express. Satya Poddar and Sukumar Mukhopadhyay in Business Standard. Anil Padmanabhan and S. Narayan in Mint. Editorial in Financial Express. Tina Edwin and Gautam Ray in the Economic Times. There are three huge and complex projects which are afoot in India today, each of which is of critical importance...
Sunday, 20 December 2009
by Radhika Pandey and Rudrani Bhattacharya.This appeared in Financial Express today.In India, many people look at year-on-year changes to track the state of the economy. This indicator has important weaknesses. It is the moving average of the change seen in the latest twelve months and is hence a sluggish indicator of the changes in the economy. In order to monitor current developments in the economy, it is preferable to look at month-on-month changes.However,...
Shifting away from central planning Traditionally, Indian socialism has involved government control of all aspects of financial products or processes. As an example, government specified the time of day at which trading starts and the time of day where it stops. The RBI committee process on currency futures and interest rate futures specified that trading must start at 9 AM and stop at 5 PM.In most areas of the Indian economy, goverment no longer controls the economy in such fashion. The government does not specify what time a shop opens or...
Saturday, 19 December 2009
There is a lot of concern about inflation. Most of it is based on perusing the following numbers of the year-on-year changes in price indexes: Jul Aug Sep OctCPI (IW) 11.9 11.7 11.6 11.5WPI -0.7 -0.2 0.5 1.3WPI Food 13.3 14.0 15.7 13.4WPI fruits,vegs15.5 12.0 24.6 11.1 True inflation in India is somewhere between the CPI-IW (which overstates the importance of food) and the WPI (which overstates the importance of tradeables and thus the exchange rate). YOY CPI changes are stubbornly above 10\%, and the yoy WPI inflation...
Friday, 18 December 2009
Andhra Pradesh was once seen as a state with good governance by Indian standards. In recent years, the problems seen with Satyam, attempts to harass Nimesh Kampani, etc. have led many to question the quality of governance in Andhra Pradesh. Today, John Elliott has an important article in the Financial Times on the difficulties of Andhra Pradesh.I took a look at the CMIE data on investment projects outstanding to measure the share in the investment projects at hand in India. I found that the action was strongest in state-wise data for projects which...
Monday, 14 December 2009
I wrote two columns on trade liberalisation in Financial Express: Where did the Bombay Club go wrong? Trade liberalisation: Looking beyond the WTO Also see: Protectionism by India, as seen at Global Trade Alert. The Unrelenting Pressure of Protectionism: The Global Trade Alert's Third Report by Simon J. Evenett, on voxEU yesterday. Praveen Kumar Singh has an article in Indian Express, via yahoo about an egregious piece of protectionism that's proposed by the Indian government: banning foreign...
Sunday, 13 December 2009
Marginal Revolution pointed me to a paper by Edward Miguel, Sebastian Saiegh, and Shanker Satyanath (of UCB, UCSD, NYU) titled Civil war exposure and violence. Their key result is: Football players from countries which have experienced civil wars are more violent on the field (after controlling for a host of things). This supports the idea that exposure to violence coarsens human sensibilities.The authors mention the World Values Survey, and I dug out a small table out of this about responses to the proposition:...
Tuesday, 1 December 2009
T. N. Ninan in Business Standard on the decline of Bombay. I think of the establishment of ISB in Hyderabad as an important lost opportunity, and a prominent contribution of the Shiv Sena to India's backwardness. ISB near Hyderabad is an impressive achievement, but it's a shadow of what it would be if it were on the outskirts of Bombay. G. N. Bajpai, Mr. Bhave's predecessor's predecessor, argues in favour of legislation that defines the role of HLCC and makes it more effective. (This was an opinion piece in the Economic Times)....
Monday, 30 November 2009
by Nachiket Mor.The problemThe main source of funding for microfinance in India has been through banks, primarily through the forced `priority sector lending'. Over the years, the demand for funds in the microfinance industry has outpaced the growth in investment by banks. In addition, banks are not the ideal place for these assets, given the nature of cashflows and maturity of micro loans. Hence, even though MFI assets are part of priority sector lending, the excessive focus on bank capital has effectively raised the cost of capital for MFIs.The...
Friday, 27 November 2009
Sheikh Makhtoum won't go to debtor's prison, but short of that, Dubai's all-but-sovereign default is an epochal event in its story. I wrote a column in Financial Express titled Dubai's great crash where I draw on this episode to think more clearly about (a) International financial centres and (b) Puffery. On this subject, also see Reality catches up with the Gulf's model global city by Roula Khalaf in the Financial Times, and 'The Sheikh's New Clothes?' Dubai's Desert Dream Ends by Stanley Reed in Business Week.One hears talk...
Thursday, 26 November 2009
In India, in the fields of health and education, an impressive rise of a private ecosystem has come about. In these fields, the State has tried hard to get back in the game, particularly after the UPA won power in 2004. But the unwillingness of the State to undertake deeper reforms has meant that ultimately, government facilities generally work badly. CPI(M) ideologues send their children to private schools.The CMIE Consumer Pyramids data shows the fraction of household expenditure on school/college fees. Households that spend nothing...
Wednesday, 25 November 2009
by Gurnain Kaur PasrichaIn recent months, a sense has emerged that the exchange-traded currency futures market in India is more liquid than the corresponding contract traded OTC (i.e. the forward market). As an example, we examine a dataset from NSE of 28,797 observations of data - one observation per second - from 3 November 2009, for the November expiry. The effective spread for a transaction of $1 million (i.e. 1000 contracts) is calculated, in the units of paisa. This dataset has the following summary statistics: 5%25%50%75%95% 0.5190.7631.0001.3802.344...
Tuesday, 24 November 2009
MOF has setup a working group on foreign investment:To review the existing policy on foreign inflows, other than Foreign Direct Investment (FDI), such as foreign portfolio investments by Foreign institutional investors (FIIs)/ Non Resident Indians (NRIs) and other foreign investments like Foreign Venture Capital Investor (FVCI) and Private equity entities and suggesting rationalisation of the same with a view to encourage foreign investment and reducing policy hurdles in this regard while maintaining the Know Your Customer (KYC) requirements. ...
A lot of people are getting anxious about a scenario with outsized capital inflows hitting India. The historical time-series is illuminating: QuarterBillion USDPercent to GDP12/2004 12.6 7.4 03/2005 8.2 4.6 06/2005 5.8 3.4 09/2005 10.5 6.2 12/2005 0.8 0.4 03/2006 8.4 4.2 06/2006 10.7 5.7 09/2006 7.9 4.2 12/2006 10.8 4.8 03/2007 15.8 6.7 06/2007 17.8 7.4 09/2007 33.2 13.6 12/2007 31.0 10.7 03/2008 26.0 8.7 06/2008 11.1 4.0 09/2008 7.6 2.8 12/2008 -4.3 -1.6 03/2009 -5.3 -2.0 06/2009 6.7 2.7 In the latest quarterly...
Friday, 20 November 2009
Tackling systemic risk is no job for the status quo by William Donaldson and Arthur Levitt, in the Financial Times. Short-Selling Bans around the World: Evidence from the 2007-09 Crisis by Alessandro Beber and Marco Pagano. The abstract reads: Most stock exchange regulators around the world reacted to the financial crisis of 2007-2009 by imposing bans or regulatory constraints on short-selling by market participants. We use the large amount of evidence generated by these regime changes...
Wednesday, 18 November 2009
I wrote an article in Financial Express titled The problem of big banks. On this subject, also see: In the world of banks, bigger can be better, Charles Calomiris in the Wall Street Journal. A three-way split is the most logical, by John Gapper in the Financial Times. Narrow banking is not the answer to systemic fragility by Charles Goodhart. See the section titled Regulatory and legislative reaction and the foreign exchange market in Lessons for the foreign exchange market from the global financial...
Count Sergei Witte was an important figure in czarist Russia in the early 20th century. In October 1905, he wrote a memorandum to the Tsar summarising his view of the political unrest in the aftermath of the Japanese war. In it, he said: The idea of civil freedom will triumph, if not by way of reform then by way of revolution. But in the latter event it will come to life on a thousand years of destroyed history. The Russian rebellion, mindless and pitiless, will sweep everything, turn everything to dust. What kind of Russia will emerge from this...
Sunday, 8 November 2009
The CMIE Consumer Pyramids data shows that in all their income categories, more than 50% of households have a mobile phone. It is only in their bottom category `Lower Middle Income - II' that only 37.5% of households have mobile phones. From `Higher Middle Income - III' upwards, the incidence is above 80%. If you had asked anyone in 1999 or 1989 whether this could be done by 2009, the answer would have been in the negative.With broadband Internet, in contrast, India has not got such breakthroughs.The September 2009 issue of Finance...
Friday, 6 November 2009
I have an article in Financial Express where I look back economic development in Eastern Europe in the last 20 years, and compare and contrast with India.In recent weeks, a lot of very interesting writing, looking back at 1989, has come out. My suggestions for further reading follow. Readers of age 40 and below should try particularly hard to read these and other materials so as to comprehend these earth-shaking events. These events matter because they have had a huge influence on the world that we see today. And, they matter because they help...
Thursday, 5 November 2009
Jerry Caprio and Ila Patnaik, at two ends of the world, on the same subject.The UK Special Resolution Regime has excellent documentation on the web.There is a lot of talk in India about financial stability, where basic ideas are distorted to defend the status quo. Financial stability is, sadly, not interesting to the establishment when achieving it requires undertaking economic reform. One example of this is the problems of closing down failed banks or other financial firms: few things are more important to financial stability...
Tuesday, 3 November 2009
On 30 October, I had written a response, in Financial Express to recent RBI moves on financial reform. Here are a few other responses: Anil Padmanabhan in Mint on the big picture. An editorial in Business World, and Tamal Bandyopadhyay in Mint, on the PLR controversy. An editorial in Financial Express, and a blog post by Bagdu, on freedom to open branches. ...
Saturday, 31 October 2009
Sanjeev Sanyal in Business Standard : Building cities for 21st century India, Delhi (which leads you to delhinullahs.org), and Calcutta. Also see: The Sustainable Planet Institute. Why investment banks were fated to be roadkill, in Financial Express by Viral Acharya. On Mumbai's Streets, Cabbies Fight To Keep Passengers Uncomfortable by Eric Bellman in the Wall Street Journal. A simple emphasis on law and order would go a long way. Green roots of recovery, by Ila Patnaik in Indian Express. In...
Friday, 30 October 2009
Thursday, 29 October 2009
Writing in Indian Express, Pratap Bhanu Mehta looks back at Indira Gandhi. He offers five lessons for today's Congress: Leaders are more effective when they work through institutions rather than attempting to subvert them. Sound economic policies are not a matter of simply projecting good intentions; they require a concerted understanding of the causal conditions that make for successful intervention. Being personally secular is neither here nor there. The important thing is to fish in the treacherous waters of communal identification,...
Monday, 26 October 2009
Sunday, 25 October 2009
Monday, 19 October 2009
Friday, 16 October 2009
Shilpy Sinha and Swapnil Mayekar have a story in Business Standard offering some optimism about the corporate bond market. They point out that in the six months from April to September 2009, corporate bond turnover was Rs.1.6 trillion, when compared with Rs.0.5 trillion in the same period of the previous year.SEBI has decided to force many market participants to do netting by novation at a clearing corporation when trading on the corporate bond market. From 1 December 2009 onwards, there will be two possibilities...
Tuesday, 13 October 2009
David Oakley reports on Brazil having made it to investment grade. This is their payoff to the immense progress that took place in the last decade in terms of fiscal, financial and monetary institution building. In many respects, India's starting conditions today are similar to where Brazil was before these reforms. Robert Shiller, in Financial Times defends financial innovation, and Robert Cryan, in New York Times worries that Canadian banks missed opportunities in this crisis. Chiraga Chakrabarty, in DNA, on the...
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