by Harsh Vardhan.The CEO of a leading bank recently caused a flutter in the bankingcommunity by demanding the abolition of the Cash Reserve Ratio (CRR).RBI has promptly appointed a committee to look at this issue. The reserveratios, CRR and SLR (Statutory Liquidity Reserve), are an importantfeature of Indian banking regulation. Alongside the debate about CRR,and new thinking about how monetary policy should be conducted, weshould also review the SLR. SLR is a muchbigger burden on the banking system and has no role in monetarypolicy.What is SLR?SLR...
Monday, 29 October 2012
Saturday, 27 October 2012
While many researchers have started studying corruption, as of yet, the field is remarkably bereft of tangible policy choices that would yield reduced corruption. As I read The other side of reforms by A. K. Bhattacharya in the Business Standard, and Obtaining financial records in China by David Barboza in the New York Times (which describes the modus operandi of the New York Times' remarkable expose of corruption in China at the level of the Prime Minister, also by David Barboza), I thought there is one tangible policy lever through...
Friday, 26 October 2012
A. K. Bhattacharya in the Business Standard on how the UPA is faring well without Pranab Mukherjee.As we ponder the fundamental challenges that India faces, it is interesting to read Boss Rail by Evan Osnos in New Yorker magazine.India's new approach lets individual states take the lead on development by Simon Denyer in the Washington Post.Madhavi Goradia Divan in the Indian Express on defamation law.Towards better financial regulation and What is regulation for, by Ila Patnaik, on the big picture of the FSLRC...
The graph above shows headline inflation in India, i.e. year-on-year CPI-IW inflation. The informal target zone for policy makers in India is to have year-on-year CPI-IW inflation between four and five per cent. This is shown on the graph as blue dashed lines.From February 2006 onwards, inflation breached the upper bound of five per cent. It has never come back below five per cent. The red line shows the overall average inflation from 1999 to today:...
Wednesday, 24 October 2012
Who does agriculture in India? Here's some fascinating evidence, from the CMIE Household Survey for the quarter Apr-May-June 2012. This is a survey of 700,000 individuals in 150,000 households all across India, both urban and rural. Let's look at the share of the working population, in each age group, that's engaged in agriculture:Age 15-20 19.69Age 20-25 21.22Age 25-30 24.70Age 30-35 28.22Age 35-40 30.91Age 40-45 32.76Age 45-50 34.75Age 50-55 36.96Age 55-60 40.02Overall 31.31As we see, in the overall dataset, 31.31 per cent of the working population...
Monday, 15 October 2012
My previous blog post, on not cancelling trades after a fat finger trade, elicited some interesting email conversations. In a nutshell, there are two views of the world. One camp argues that it is important to prevent fat finger trades and other such weird episodes. This requires building an array of preventive measures. The other side argues that the costs of prevention are high, and what's really important is to make a resilient market that is able to absorb shocks.Prevention is difficult for two reasons:NSE and BSE are some of the biggest exchanges...
Saturday, 13 October 2012
When inexplicable things happen on an exchange, many people argue that those trades should be cancelled. I think it is useful to be clear about the test to apply for this.The key question should be: Did something foul up in the order matching software? If order matching went wrong, or if there was a systematic breakdown of connectivity to the exchange, then there is a case for cancelling trades. We'd say that persons placed certain orders, but the exchange mis-handled the orders, hence the observed series of matched trades and prices is unfair.If...
Wednesday, 10 October 2012
Harsh Vardhan's excellent blog post on this subject made me think further about the questions.Finance policy makers in India are often proud of the fact that India has avoided a large systemic crisis in which substantial fiscal resources have been put into rescuing financial firms. I think this optimism is overstated. If we look back into the last 20 years, there has been a steady process of government money going into financial firms. On one hand, we have big events like UTI or IFCI or Indian Bank where large sums of public money were put into...
Tuesday, 9 October 2012
by Harsh Vardhan.What would you say if someone was borrowing money at 8% andinvesting it to earn around 3%? "Uninformed!", "financiallyilliterate!" or even outright "foolish"! And yet this is what ourgovernment has been doing with trillions of rupees over the lastmany years and has committed to continue to do so in the future.The process by which this is done is called capitalisation of public sector (PS) banks. Such capitalization is not only a bad ideaeconomically as it puts enormous stress on the government resources,but also one which affects...
Thursday, 4 October 2012
The price of half-truths by Pratap Bhanu Mehta in the Indian Express.Rise of crony journalism and tainted money in media by R. Jagannathan on Firstpost.Telecom, power, oil: Guide to crony capitalism, Indian style by R. Jagannathan on Firstpost.Trampling on the individual in India:- Gagged and Bound: Why India's `free internet' is a big, fat lie by Danish Raza on Firstpost.- Why we need more blasphemy, not less by R. Jagannathan on Firstpost- Aakar Patel on FirstPost on the problems of free speech in the...
Monday, 1 October 2012
Embrace FSLRC's approach towards financial reforms, by the editorial team on taxindiaonline.Dhirendra Kumar on valueresearchonline.N. Sundaresha Subramanian in the Business Standard.George Mathew in the Indian Express.Shaji Vikraman in the Economic Times. Editorial there.What is regulation for? by Ila Patnaik in the Indian Express.Buyer beware to seller be responsible, by Monika Halan in Mint.Editorial, Monika Halan (+video), Asit Ranjan Mishra, Mobis Philipose in Mint.Editorial, Ila Patnaik in the Financial Expre...
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