C. P. Chandrasekhar’s Blog

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…

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…

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…

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…

Though Finance Minister Nirmala Sitharaman laboured for well over 2 hours when delivering her budget speech, it is likely that the aspect of the speech that will receive popular attention would be the restructuring of income tax slabs and reduction in rates that would benefit the tax paying middle class. That was obviously also the intention of the exercise. Budget 2021-22 was being presented at a critical time for the economy, with growth decelerating sharply, and evidence of adversity not just in the informal economy but in the corporate sector as well. With official data suggesting that, even prior to…

Besides its length, Finance Minister Nirmala Sitharaman’s speech presenting the Budget for 2020-21 was notable for a number reasons. It did not discuss the likely shortfall in revenue collection relative to targets during financial year 2019-20 and what that implies for state action. Much of the speech sounded like it was being made on behalf of other ministries highlighting their ongoing or new programmes, rather than on behalf of the ministry of finance. It did not, when discussing expenditures refer to the increase in allocations for 2020-21 relative to the budget or revised estimates for 2019-20, but merely quoted absolute…

In the search for resources to make up for sluggish tax revenue growth, one source to which the Finance Minister rising to present Budget 20201 can legitimately turn is the Reserve Bank of India (RBI). But the government’s draft on RBI funds cannot be arbitrary, at least for four more fiscal years. The controversy over the principles that would determine how much of its annual surpluses the central bank should retain as its “economic capital”, to deal with risks and contingencies, and how much should be transferred to the government as ‘dividend’ was settled for five years by a Bimal…

Given the obsession to limit the dressed up fiscal deficit figure and unable to think of better responses to the growth slowdown than tax cuts, it is more than likely that better economic management and ways to address the intensifying stagflation would not be the focus of the Finance Minister’s attention when presenting the next Budget. Objective number one is likely to be a show of fiscal prudence. But, given the recessionary environment, that alone would not do, since there must be some indication of further efforts to stimulate the economy and trigger a turnaround. That needs enhanced spending. Faced…

Speculation is rife on what Finance Minister Nirmala Sitharaman’s second budget will contain and do. It does not take much to speculate on what it is most unlikely to do, which is to substantially hike central government expenditures as a way of reviving demand and reversing the slowdown in growth, which is at its lowest in a decade of around 5 per cent. There are reasons why this is unlikely. To start with, as estimates of tax revenues and non-tax receipts for the first eight months of ongoing financial year 2019-20 indicate, the receipts of the central government are growing…

It is not the most conducive time for Finance Minister Nirmala Sitharaman to present her second budget. Growth is decelerating sharply, revenues are lagging behind targets, the government’s off-budget transactions that make a mockery of budget estimates are being revealed, and ambitious plans to sell public sector equity are proving difficult to realise. In the event, as the Finance Minister puts together the Budget documents for financial year 2020-21, she faces two challenges. To start with, she must work to provide a credible account of what her government managed to do fiscally in the current year, 2019-20, her first as…