The Crisis in Manufacturing C. P. Chandrasekhar and Jayati Ghosh
With the Index of Industrial Production (IIP) registering negative month-on-month annual rates of growth over the three months ending October 2019, the perception, based on trends in individual industries, that Indian industry is experiencing or is on the road to a recession has gained strength. It is true that month-on-month growth rates tend to be volatile and are heavily influenced by the base effect. However, trends depicted in Chart 1 suggest that growth decelerated sharply for some recent months before turning negative. Moreover, even the growth of 0.5 per cent during the first seven months of this financial year (April…
End of the free trade myth C. P. Chandrasekhar
Unless the Trump administration’s views on the WTO change dramatically, December 11 could mark the end of an era in global trade. On that date two more members (of the three in position out of a mandated seven) of the appellate board for dispute settlements at the World Trade Organisation (WTO) would complete their terms. The Appellate Board (AB) is the final arbiter on decisions taken by the panels set up to address member complaints on violation of WTO rules by competing nations. Since, over the last few years, the US has prevented the appointment of successors to retiring AB…
The Descent Ahead C. P. Chandrasekhar
The Moody’s decision, citing a growth slowdown and policy inadequacy, to downgrade India by changing its credit rating outlook to ‘negative’ from ‘stable’, and doing the same for a bunch of financial institutions and firms in the power and infrastructure sectors, has created a stir. At first glance the fuss is difficult to understand. There has been a consensus building even in ‘Modi-friendly’ circles, stretching from the international financial institutions to the domestic media, that the Indian economy has been experiencing a significant deceleration in growth. Hence, Moody’s, whose credibility has in any case been suspect ever since the decade-old…
Household savings in Troubled Times C. P. Chandrasekhar and Jayati Ghosh
The experience of depositors in the Punjab and Maharashtra Cooperative Bank (PMCB) suggests that the government and the central bank are unwilling to protect the financial savings of ordinary households. Besides allowing depositors in the bank to access only a maximum of Rs.50,000 from their savings, more than a month and half after the cooperative bank was asked to cease its business because of potential insolvency, the government is ‘considering’ raising the woefully inadequate level of deposit insurance from Rs. 1 lakh to just Rs. 2 lakh. It is to be expected that this and other similar experiences are likely…
The Mess called “Reform” in Telecommunications C. P. Chandrasekhar
Neoliberal reform has plunged more than one industry into a crisis, where large scale failure is the norm, but there is no sign of resolution. India’s civil aviation sector is a stark example. So is the beleaguered telecommunications industry. The mess in telecom has been highlighted by what should have been a routine event: a Supreme Court judgement upholding the Department of Telecommunications (DoT) definition of what constitutes Adjusted Gross Revenue (AGR) of firms in the industry. Delivered at the end of more than a decade of litigation, the judgement has thrown the industry into disarray. The government has consistently…
The Liquidity Conundrum C. P. Chandrasekhar
A common refrain in assessments of India’s current economic predicament is that the economy is performing below potential because of a lack of ‘liquidity’. Often, this is merely a means of stating that an inadequacy of credit flow is choking up demand, operations and investment in the real economy. Influenced by such a reading of the current economic situation, the government’s crisis response has focused on measures that could enhance financial flows, spur credit growth, and ensure that all agents, large and small, are serviced. In the most recent of such initiatives, Finance Minister Nirmala Sitharaman said that it has…
Banking Jitters C. P. Chandrasekhar
In an unusual and ill-advised move, the Reserve Bank of India issued a brief ‘clarification’ on October 1st which said: “There are rumours in some locations about certain banks including cooperative banks, resulting in anxiety among the depositors. RBI would like to assure the general public that Indian banking system is safe and stable and there is no need to panic on the basis of such rumours.” That move was unwise because it unnecessarily drew attention to the possibility that recent developments in the banking sector, especially the stringent limits set on withdrawals from the failing Punjab and Maharashtra Cooperative…
Market Jitters that carry a Message C. P. Chandrasekhar
Mid-September saw some unusual developments in US money markets, which gave market players and monetary authorities the jitters. Over three days, a key short term interest rate rose sharpy to reach levels last touched about a decade ago, when the world was hit by the financial crisis. The overnight repo (or repurchase agreement) rate, which is normally expected to remain close to the benchmark Federal Funds rate set at between 2 and 2.25 per cent, suddenly and unexpectedly soared to 5 per cent and then peaked at 10 per cent, before being brought down through aggressive action by the US…
RCEP: A dangerous drift C. P. Chandrasekhar
In another instance of lack of clarity in economic decision making, the NDA government seems to be drifting into signing on to the Regional Comprehensive Economic Partnership (RCEP) Agreement potentially involving 16 Asia-Pacific partners. Under discussion for 7 years now, the agreement is slated to be sealed by a November 2019 deadline, for which negotiations have been fast-tracked. Expectations are that in a best-case scenario from the perspective of the Agreement’s advocates, signatories would include, all 10 ASEAN countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), and their free trade agreement (FTA) partners Japan, South…
Sops that are no Stimulus C. P. Chandrasekhar
The government has finally admitted that the Indian economy is on a steep downturn. For some time now, even the business community, which tends to shower all praise and disapprove any criticism of the reformist Modi dispensation, has expressed concern about deteriorating economic conditions and the absence of any decisive action on the part of the government. This was seen as a signal that the ‘business friendly’ government had to act, though there appeared to be no clarity in the policy establishment of what needs to done. It was only after experimenting with a range of half-hearted measures, including a…