Since most of us in India can talk about little else other thancorruption, do read ahref="http://www.voxeu.org/index.php?q=node/5971">this article byNauro F. Campos and Ralitza Dimova on voxEU which is an interestingmeta-analysis about papers which analyse the impact of corruption ongrowth. I have long heard about meta-analyses, but this one made mesit up and notice./aAnand Giridharadas in the New York Times on Arthur Bunder Road in Bombay.Roger Bate and Tom Woods, in The American, point to ahref="http://www.american.com/archive/2010/december/made-in-india-faked-in-china">anew...
Tuesday, 28 December 2010
Tuesday, 21 December 2010
Discussions on 'Mythbusting: Current account deficit edition'
Posted on 22:39 by Unknown
Many interesting comments appeared on my previous blog post, a href="http://ajayshahblog.blogspot.com/2010/12/mythbusting-current-account-deficit.html">Mythbusting:Current account deficit edition, and I thought it made senseto respond to all of them in this post./aAmbarish: I don't think there has been a sudden rise in rupeetrading outside India. It was always there; we weren't seeing it. AsJayanth Varma has emphasised, we used to think the NDF market was inSingapore. But the BIS data on rupee trading shows significant rupeetrading at many places...
Monday, 20 December 2010
Mythbusting: Current account deficit edition
Posted on 08:31 by Unknown

The questionIn recent months, the current account deficit has risen. The latest data shows: Sep 2009 -3.03Dec 2009 -3.64Mar 2010 -3.68Jun 2010 -3.84 This has started making many people worried. Is such a `large' current account deficit a cause for concern?The right answerHow long should a man's legs be? Long enough to touch the ground.The old intuitionUnder a fixed exchange rate, where the central bank holds the rate fixed by trading...
Saturday, 18 December 2010
Talk on US financial regulatory reform, by Viral Acharya
Posted on 02:34 by Unknown
Viral Acharya will do a talk Recent developments in financial regulatory policy in the United States: Review and Critique at NIPFP (1st floor conference room) at 4:30 PM on Monday the 20th of December. All are invited. The talk will be followed by snacks on the lawns of NIPFP.This will draw upon the work of many scholars at the NYU Stern School of Business, which has given two books: Restoring financial stability: How to repair a failed system (Viral V. Acharya, Matthew Richardson, 2009) and Regulating Wall Street: The Dodd-Frank...
Monday, 13 December 2010
Appropriate regulatory structure for development
Posted on 07:06 by Unknown
A. D. Shroff Annual Public Lecture, by C. B. Bhave.It is a great honour to be invited to deliver the A. D. Shroff Annual Public Lecture. Mr. A. D. Shroff was an outstanding financial thinker and a practioner who took great interest in organisational and ideological issues. He was known to express his views in a candid manner and without any fear of the consequences of such expression. Regulators have a reputation of not speaking much and if they do speak then not saying much. I will try to strike a balance between Mr. Shroff's forthrightness...
Saturday, 11 December 2010
Friday, 10 December 2010
A puzzling data revision
Posted on 08:36 by Unknown
Ordinarily, official statistics get revised because at first, provisional estimates are released, and when the full data filings come in, then improved estimates are put out.In the case of RBI's data about RBI's trading on the currency market, such data revisions should ordinarily not arise.But yesterday, data released by RBI modified the previous information that had been put out about RBI's trading on the currency market. Earlier, trading in June had been claimed to be 0. Now it shows purchase of $370 million and sale of $260 million. Earlier,...
Thursday, 9 December 2010
Interesting readings
Posted on 05:35 by Unknown
One of the big impediments to India's integration into the world economy is xenophobic visa rules. There is some progress in the pipeline: visa on arrival has been working from Jan 2010 onwards for visitors from Finland, Japan, Luxembourg, New Zealand and Singapore. A nice touch here is that India did not get stuck on issues of reciprocity; this is unilateral liberalisation.Watch this talk by Steve Coll.Mature treatments of the Niira Radia wiretaps : Sail Tripathi in the Mint, Pratap Bhanu Mehta in the Indian Express.Anil Padmanabhan...
Tuesday, 7 December 2010
A club of 19
Posted on 10:31 by Unknown
What binds this club of 19 countries: China, Russia, Kazakhstan, Colombia, Tunisia, Saudi Arabia, Pakistan, Serbia, Iraq, Iran, Vietnam, Afghanistan, Venezuela, the Philippines, Egypt, Sudan, Ukraine, Cuba and Morocco? Answer. Am I glad India is not in this cl...
Saturday, 4 December 2010
Alternative stock market indexes
Posted on 10:42 by Unknown
I saw this interesting article about the mind-share of Nifty as opposed to the BSE Sensex. It is by Samie Modak and Muthukumar K. in the Financial Express.The NSE data for June 2010 shows that Nifty futures have peaked at Rs.0.36 trillion of notional turnover in a day (27 Jan 2010) and Nifty options have peaked at Rs.0.89 trillion of notional turnover in a day (24 June 2010). Nifty has shaped up as one of the big contracts by world standards. It is interesting to go back and read the original paper. Those were interesting...
A more efficient piece of code
Posted on 03:14 by Unknown
CMIE's firm databases use a fine-grained product code to identify each product. Each firm is also allocated to a product code based on its predominant activities. I like to reconstruct a coarse classification out of this that suits my tastes. I do this using this R function:cmie.14.industries <- function(s) { values.8 <- c("Food","Textiles", "Chemicals","NonMetalMin", "Metals","Machinery", "TransportEq","MiscManuf", "Diversified","Serv.IT") names(values.8) <- c("01010101",...
Tuesday, 23 November 2010
Ownership & governance of critical financial infrastructure
Posted on 13:36 by Unknown
SEBI has released the Bimal Jalan committee report about the ownership and governance of critical financial infrastructure. We're going to need a similar report on the questions about entry into banking al...
Thursday, 18 November 2010
Governments riding in to rescue firms
Posted on 18:05 by Unknown
What is a government to do when a company faces a near-death situation? In almost all cases, the right answer is to let the company go under: It is not the job of a government to prevent companies from dying. Indeed, creative destruction is central to the proper functioning of capitalism. Capitalism without failure is socialism for the rich.But sometimes, the cost-benefit ratios can look startling. Sometimes, the disruption to the economy that comes from the death of a company can be rather large. Let's look at three stories.Three examples...
Saturday, 13 November 2010
Let's go metric
Posted on 20:46 by Unknown
T. N. Ninan, writing in Business Standard, calls for a shift away from lakh and crore to thousand, million, billion and trillion. We agree! And we've moved our Indian Business Cycle page to metric.Indian economics is easier in the metric system. GDP is Rs.55 trillion. The market capitalisation of Reliance is Rs.3.5 trillion. On a good day, Nifty as an underlying has derivatives turnover of Rs.1.5 trillion. A billion dollars is Rs.44 billion. When I was at the MoF, I had tried suggesting that the budget documents should be switched to metric, without...
Sunday, 7 November 2010
Interesting readings
Posted on 12:22 by Unknown
C. Raja Mohan in Foreign Policy magazine on India's strategic future.Vivek Kulkarni in the Hindu Business Line estimates the magnitude of corruption in Karnataka.Ashish Nandy in Outlook magazine on India's proclivity towards censorship.How to improve tax compliance in India: Thorsten Beck, Chen Lin and Yue Ma have an article where they say that financial development helps reduce tax evasion: when firms use more external financing, they have greater incentive to not `cook the books', which induces bigger tax payments.Salil Tripathi...
India's liberal foundation
Posted on 12:10 by Unknown
I just read The off-key notes of a Sena scion by Rahul Pandita in Open magazine. The quick summary: Aditya Thackeray is the son of Uddhav Thackeray and the grand-son of Bal Thackeray, both of whom are the most-feared politicians of Bombay. He is now being initiated into politics, and has led the charge by threatening violence against those who would read Rohington Mistry. But his resume up to here features all sorts of nice nineteenth century liberal values such as writing poetry, mostly in English, rap music, Urdu, wearing...
Friday, 5 November 2010
Why does Bombay have abysmal governance?
Posted on 21:24 by Unknown
The resource curseFor many years, economists have been puzzled at the way things have gone wrong in countries where natural resources were discovered. In 1993, the economist Richard M. Auty coined the phrase `Resource curse' to convey the extent to which natural resource finds are a curse and not a blessing. But the idea had been kicking around well before that. I suppose it was an obvious conjecture after watching the failures of the Middle East, where trillions of dollars of oil revenues were squandered by not one but many countries.In...
Thursday, 28 October 2010
An option chain for INR/USD
Posted on 20:43 by Unknown
We are all used to seeing the options chain for Nifty, but now you have one for INR/USD.Also read Mobis Philipose in Mint on the unfinished business of derivatives trading in Ind...
Who will make the exchange-traded currency options market?
Posted on 20:17 by Unknown
In a few minutes, NSE and USE will start trading in currency options. This will be the first exchange-traded options in India on a non-equity underlying.Currency options are obviously useful as a risk-management tool. I feel that futures are nice simple linear contracts: they ask the person to make only one decision -- are you long or are you short. But once a futures position is entered into, the person needs the ability to manage the position since daily marking-to-market is done, and since there can be large losses for either the futures long...
Monday, 25 October 2010
Better living through economics
Posted on 18:15 by Unknown
The `lemons model' in milk procurementOne of the classic stories of India of old is that of Amul, which brought new technology into milk procurement. When the farmer brought his shipment of milk to the Amul front-end, a centrifuge was used to measure the characteristics of this shipment, and based on this payments were made. See this blog post by Alok Parekh, Naman Pugalia and Mihir Sheth. This eliminated the incentives for aduleration of milk by the farmer, which used to be done by adding in water or by skimming the cream.We can think...
A cross-country comparison of charges of exchanges
Posted on 15:17 by Unknown
In reading this article in the Wall Street Journal by By Rebecca Thurlow, Alison Tudor And P. R. Venkat about the potential merger of SGX with ASX, I saw this interesting cross-country comparison of exchange charges (in basis points):Country Trading and clearing TaxesSingapore4.750Hong Kong1.120Taiwan0.7530Korea0.5430Australia0.530India0.3527Japan0.240It is quite a striking set of facts.First, we see that in terms of the core trading and clearing -- the charges of the exchange -- India is the 2nd lowest in this pile, with a value of 0.35...
Wednesday, 13 October 2010
Currency conflicts come to prominence again
Posted on 10:54 by Unknown
From the mid 1990s onwards, the US trade balance has steadily become bigger. This is a centrepiece of the problem of `global imbalances'. Starting from values of roughly zero, this got all the way to values like $70 billion a month, where the US was importing over $2 billion a day of capital to pay for the trade deficit. Here's the picture:The US trade balance (goods+services, per month, seasonally adjusted)This was termed as the `Bretton Woods II'...
Tuesday, 12 October 2010
Movement on FSDC
Posted on 12:53 by Unknown
MoF press release on FSDC.For the background on FSDC, see: the budget announcement of Feb 2010, a newspaper column of mine on 16 March, and a collection of responses in the media on 20 March.Does the FSDC amount to clipping RBI's wings?The FSDC is only a committee. It is not backed by law. So nothing changes about RBI's role and function.RBI staff have done speeches saying that financial stability is their job.The RBI Act does not contain the word `financial stability'. So while some in RBI might aspire to such a function,...
Sunday, 10 October 2010
Interesting readings
Posted on 22:01 by Unknown
C. J. Chivers has a story in the New York Times from Uzbekistan which links up to an idea that I have often thought would be a great step forward for India: the interior of every police station in the country should be blanketed with video cameras giving feeds out to the Net. As Robert Kaplan says, underdevelopment is where the police are more dangerous than the criminals. If we think surveillance cameras are important in public places, they are triply important to watch the interiors of police stations. On a related note, see...
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