Economic policy in the age of Covid C. P. Chandrasekhar
With the Covid-19 shock pushing a tanking economy into recession, an unusual response from the State was expected. The government’s policy response cannot but entail a sharp increase in expenditure to cope with the medical fallout and the ‘sudden stop’ in a wide range of economic activities that the virus attack imposes. That response had to come primarily from the Centre, which has far greater fiscal flexibility than the state governments, whose revenue receipts are under strain for multiple reasons and are subject to stringent borrowing limits. Workers without regular employment displaced from their jobs have to be provided transfers…
Knowns and Unknowns in the Covid-triggered Global Economic Crisis C. P. Chandrasekhar
The coronavirus or Covid-19 pandemic has put the world’s economic decision-makers and their advisors in no man’s land. The challenge they must address is visible and obvious, but the means to do so effectively are almost an unknown. It is clear that in the first quarter of 2020 the economies of most of the world’s nations would have contracted, some to a significant degree. Whether that contraction will continue and, if it does, for how long, is anybody’s guess. Speculative forays into estimating the degree of contraction in the gross domestic product (GDP) and where collapsing stock markets would settle…
A Niggardly Response to an Extraordinary Crisis C. P. Chandrasekhar
In a show of solidarity, some of India’s opposition leaders have declared the much-delayed relief package (titled Pradhan Mantri Garib Kalyan Yojana) announced by Finance Minister Nirmala Sitharaman on March 26 to mitigate the effects of the Coronavirus pandemic on the poor as a welcome “first step”. But any serious scrutiny of the contents of the package, which reads almost like a hastily put together and incomplete laundry list, cannot but conclude that it is woefully inadequate even as an initial response. To summarise, there are five broad components to the package. One is a set of measures aimed at…
Oil Shock Reversed C. P. Chandrasekhar
The cooperation between the Organisation of Petroleum Exporting Countries (OPEC) and some non-OPEC oil exporters, including oil-major Russia, to limit production and supply of oil and help hold oil prices has collapsed. In a dramatic post-Coronavirus-pandemic turn, discussions to extend this agreement among OPEC-plus countries broke down at the end of the first week of March. The agreement had been arrived at in December 2016, and had been strengthened as recently as December 2019, when production cut commitments were raised from 1.2 to 1.7 million barrels a day. The trigger for the breakdown of talks was the damaging effect that…
Coronavirus and Capitalism’s Vulnerability C. P. Chandrasekhar
Even while the slow growth that followed the Great Recession endures, the world economy is staring at another recession. The OECD Secretariat has reduced its forecast of global GDP growth by half a percentage point to 2.4 per cent, which is the lowest since the global financial crisis. The immediate trigger is the coronavirus epidemic that is disrupting global economic activity. But there is a larger message being sent out by the virus onslaught. The damage that it has inflicted on the global economy and the near certainty that the damage would only intensify, has revealed the new vulnerabilities accumulated…
The Cost of a Yes to a Bank Rescue act C. P. Chandrasekhar
The revival package announced by the Reserve Bank of India (RBI) to rescue insolvent Yes Bank smacks of desperation. Having placed a moratorium on the bank’s activities and capping withdrawals by depositors at Rs 50,000, the government has called upon the State Bank of India (SBI), to lead the rescue. The SBI, which has its own share of problems to resolve, has responded with alacrity. Even before undertaking due diligence, SBI Chairman Rajnish Kumar has announced that his bank is willing to outlay as much as Rs 10,000 crore to recapitalise ailing Yes Bank and restore it to health. There…
A Shot in the Arm for Virtual Currencies C. P. Chandrasekhar
The Supreme Court has set aside a circular issued by the Reserve Bank of India in April 2018, which directed all entities regulated by it to “not deal in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs.” By creating this Chinese Wall between the legal and formal financial system that comes under RBI surveillance, and the world of virtual currencies and the virtual currency exchanges that facilitate transactions involving those currencies, the RBI did not shut the door on digital tokens in India. But by excluding entities dealing in VCs…
The Future of Indian Finance C. P. Chandrasekhar
India’s financial landscape appears set for a sea change. Early into its second term, the Modi government, through the Budget speech of its Finance Minister, has signalled the likelihood of a fundamental transformation of Indian finance. There were five indications of this possibility in the Budget speech. The first was that the government has chosen not to do set aside funds for recapitalisation. Banks would need capital not only because past allocations have not been adequate but because of the continued presence of a high level of non-performing assets (NPAs) in their books. The impact on the budget would not…
No Escape from Low Growth C. P. Chandrasekhar and Jayati Ghosh
Discussions on the state of the world economy centre around the likely negative impact of the novel coronavirus epidemic and the potential positive effect of the truce reflected in the “phase 1” trade deal between China and India. Though most of the confirmed infections and deaths due to the virus have been confined to China (where the numbers at the time of writing exceeded 37,000 and 800 respectively), the role that country plays in driving global growth has increased concern that the adverse impact the epidemic will have on China’s economy will spill over globally. On the other hand, the…
The Road to Dominance C. P. Chandrasekhar
India’s economy may be heading to recession, but India’s leading business group Reliance Industries Limited (RIL), controlled by Asia’s richest man Mukesh Ambani, appears to be holding out well. Though revenues of the group in the last quarter of 2019 rose only by 1.4 per cent relative to the corresponding quarter of the previous year, net profit rose by a comfortable 13.5 per cent. What is remarkable, however, is the reason why the group has managed to notch up this performance when times are bad. A disaggregated picture of the group’s business reveals that its traditional areas of strength, stretching…