C. P. Chandrasekhar’s Blog

The Covid-19 pandemic has forced governments across the world to increase reliance on debt. The IMF projects the fiscal deficit as a proportion of GDP in emerging markets and middle-income economies (EMMIEs) as a group to rise from 4.9 per cent in 2019 to 10. 7 per cent in 2020 (Chart). That increase is only partly the result of enhanced spending to address the health emergency, compensate individuals and firms for loss of incomes and earnings, and counter the demand compression that keeps production down even after the lifting of lockdowns. A rise in the deficit and the resort to…

The office of the Comptroller and Auditor General (CAG) of India, in its Report 4 of 2020 relating to Union finances, has criticized the Centre’s handling of funds collected from various cesses levied for specified purposes. Cesses collected for designated purposes have to be transferred to specially created funds and not retained in the Consolidated Fund of India (CFI). Once transferred, they must then be deployed to further the identified purpose. The Centre’s violations are many.According to the CAG’s report, in practice, there are cesses with no special reserve fund associated with them, such as a ‘social welfare surcharge’ on…

Provisional trade figures released by the Ministry of Commerce indicate that India’s aggregate trade balance over the period April-August 2020 was in surplus to the tune of $14.2 billion, as compared with a deficit of $45.11 billion in the corresponding months of 2019. In normal times this emergence of a surplus trade balance for a country that is chronically deficit would be a welcome development. But these are not normal times. Global growth has slowed since 2019, which would have adversely affected India’s exports. Oil prices have been volatile, but have broadly swung in India’s favour reducing the country’s oil…

While it was expected that the Indian economy will experience contraction during the second quarter of 2020, the 23.9 per cent fall in GDP reported by the National Statistical Office came as a surprise to many. For some the surprise lay in the sheer magnitude of the contraction, which was projected by forecasters to be less than 20 per cent. For others, the surprise was that, despite recent controversies about political interference in the reporting of economic statistics, the figure actually provided was as high as it was, and possibly closer to the truth than what the government may have…

Declared the leading threat to global stability by the United States and a group of its allies, China has been accused of transgressions varying from stealing hi-tech secrets, spying, and interfering in domestic politics abroad to spreading viruses. Sometimes, even normal measures adopted by countries as part of their international economic relations are presented as crimes when practised by China. A case in point is lending abroad, especially to developing countries, including the poorest among them. China, of course, deploys its hard currency surpluses in multiple forms in a wide range of countries, including the US, with a small share…

Multiple indicators reveal that the pre-pandemic deceleration in growth segued into a deep recession that persists six months after the first reported Covid-19 case. But official optimism hasn’t waned. Some spokespersons promise a V-shaped recovery. Others clutch at every straw in sight. One such is evidence of record and rising levels of foreign exchange reserves (gold, foreign currency assets and SDR holdings) with the Reserve Bank of India (RBI). On August 7, 2020, total reserves stood at $538.2 billion, which, even if the economy were not in the midst of the ongoing recession, would be adequate to cover almost a…

At least two state finance ministers have declared it a great betrayal. Many others have strongly protested. But the Central government under Prime Minister Narendra Modi and finance minister Nirmala Sitharaman has decided to go ahead with its decision to stop the transfer of compensation to the states to cover the shortfall in state-level Good and Services Tax (GST) revenues relative to a projection that those revenues would grow at 14% per annum from its base level in 2015-16. It was that projection and the promise of compensation which underpinned the agreement to go ahead with the GST regime in…

India’s stock markets have revived and touched inexplicable peaks even while the real economy braces for what may be the largest contraction in post-Independence economic history. Having collapsed from a level in excess of 40000 in late February, when the Covid-19 pandemic struck, to less than 26000 in late-March, the S&P BSE Sensex has climbed back to well above 38000. Current stock market valuations of most firms can only be justified by expectations of extraordinary increases in sales and profits that, given the context, require not just a “V-shaped recovery” but a subsequent boom in growth. Even the optimists predicting…

The Finance Minister of Kerala, Thomas Isaac, has declared it a “betrayal” of trust. He was commenting on the statement reportedly made at a meeting of the Parliamentary Standing Committee on Finance by Union Finance Secretary Ajay Bhushan Pandey, that the Centre, in financial year 2020-21, would not fully compensate the states for any shortfall in revenues from Goods and Services Taxes. The shortfall was to be computed relative to a trajectory where state revenues grew by at least 14 per cent every year, starting from a base value computed for 2015-16. Clearly, that was the revenue growth the GST…

Across the world, one consequence of the coronacrisis has been a shift away from fiscal conservatism, with diminishing concern for austerity or even fiscal prudence. Victor Gaspar and Gita Gopinath of the IMF estimate that the total value of the global fiscal policy response to the pandemic and its fallout stood at close to USD 11 trillion by early July 2020. As a consequence, public debt to GDP ratios have crossed 100% in 25 advanced economies (only surpassed during World War II) and risen to a historic high of more than 60% in 27 emerging market economies. The pressure on governments…