Another Financial Rescue by the US Fed C. P. Chandrasekhar
While forecasters grapple with predictions on the likely contraction in the world’s leading economies, big finance, especially in the US, seems to be prematurely preparing for its next celebration. Recall that while the post-2008 Great Recession was precipitated by the financial collapse triggered by unbridled speculation in financial markets, the subsequent ‘recovery’ from the crisis saved and rewarded finance, but left the real economy limping and workers and the middle class poorer and often homeless. As the US and the rest of the world got accustomed to a new normal of slower growth, financial companies returned to profit, speculative agents…
The Worrisome Return of Capital C. P. Chandraekha and Jayati Ghosh
In a trend which sees equity markets in the “emerging economies” imitate stock markets in the US, the MSCI Emerging Market Index that collapsed over the month ending 23 March, from more than 1,100 to just above 750 (Chart 1), has since been on the rise, touching 930 by the end of May. An emerging market (EM) like India, which has been a favoured destination for foreign portfolio investors, has shown exactly similar trends (Chart 2). Over the month ending 23 March, the S&P sensitive index (SENSEX) capturing trends in the Bombay Stock Exchange had fallen sharply from more than…
A Fragile Federation under Strain C. P. Chandrasekhar
Among the many damages wrought by the inapposite Central government policy response to the Covid pandemic in India is that on the fragile framework of economic cooperation between the Centre and the states. It is clear that the real task of mitigating the effects of the pandemic on the health and lives of citizens has fallen on the states. That is inevitable. As India prepares to lift the lockdown to stall the economic collapse it has caused and face the inevitable spike in the number Covid-positive cases, “the key to success … would be the preparedness of local governments in…
Callousness in a Time of Crisis C. P. Chandrasekhar
On May 12, Prime Minister Modi declared that the government, in response to the Covid-19 induced crisis, is about to unveil a Rs. 20 lakh crore relief and revival package amounting to 10 per cent of GDP. This announcement came more than seven weeks after the first response to the crisis in the form of the Gharib Kalyan Yojana, had been announced. Involving new and additional fiscal resources of far less than one per cent of GDP, that effort was seen as too meagre to be anything more than a hesitant first step. Given this fact, the human, social and…
Outsourcing the Stimulus C. P. Chandrasekhar
On May 8, 45 days into the post-Covid lockdown, the central government, through a Finance Ministry statement, announced that its borrowing requirement for 2020-21 had been raised to Rs. 12 lakh crore, as compared with the Rs. 7.8 lakh crore projected in the budget. As of now, starting May 11, the Centre expects to be borrowing around Rs. 30,000 crore every week till September 25, as compared with a Rs. 19,000-21,000 crore planned for earlier. What would happen after September 25 is not clear as of now, but what is clear is that whether the central government likes it or…
Reliance and Facebook: Seeking pathways to profit C. P. Chandrasekhar
As the times get tough, the big seem to the thrive. At a time when economies world over reel under the sudden stop triggered by the Covid-19 pandemic, India’s dominant business group Reliance Industries (RIL) and global social media major Facebook have announced a megadeal. Facebook has entered into a binding agreement to invest Rs. 43,574 crore ($5.7 billion) to acquire a 9.99 per cent stake in Jio Platforms, a wholly owned subsidiary of RIL. That investment amounts to one fourth the size of the package announced by India’s Finance Minister in response to the Covid-19 crisis. But this is…
Contours of the Covid-crisis C. P. Chandrasekhar and Jayati Ghosh
Early evidence of the crisis in the developed world induced by the Covid-19 pandemic is trickling in. One set of numbers provide the first estimates of GDP growth in the first quarter of 2020, which includes the period when lockdowns suddenly stopped economic activity. They relate to the US and the Eurozone, which are among the epicentres of the pandemic in the group of OECD countries. According to the US Bureau of Economic Analysis, GDP in the United States contracted by 1.2 per cent in the first quarter of 2020 relative to the immediately preceding quarter, or at an annualized…
Addressing the Pandemic: Where is the money? C P Chandrasekhar
https://youtu.be/gook_yAfAH8
The Might of the US Fed C. P. Chandrasekhar
The Reserve Bank of India is reportedly in discussion with the US Federal Reserve to put in place a rupee-for-dollar swap line. If the Fed accedes, this would be a first for India, but not for the Fed. The Fed has had temporary and standing swap arrangements with chosen foreign central banks for many decades now. With trade and financial transactions overwhelmingly denominated in dollars, governments, firms and households across the world are constantly in need of dollars to settle transactions. Periodically some of them, especially those not earning adequate dollars from their own exports, face dollar funding shortages. The…
Footloose Capital and the Covid Shock C. P. Chandrasekhar and Jayati Ghosh
One of the many symptoms of the economic shock resulting from the Covid-19 pandemic is a sharp depreciation of the Indian rupee vis-à-vis the dollar. The value of the rupee fell from 71.3 to the dollar on February 12 to 76.2 to the dollar on March 24, or by close to 7 per cent in a month and a half, with much of the fall occurring over the month ending March 24 (Chart 1). There is little disagreement that this downward drift was the result of the exit of portfolio capital from India, since depressed domestic demand and falling international…