Towards a Meltdown C. P. Chandrasekhar
India’s financial sector is in the midst of a second crisis, even as the first in the form of a humungous mass of non-performing assets on the books of commercial banks remains unresolved. This time the problem is not of non-financial entities, especially corporations, defaulting on loans taken from the financial sector, mainly the banks, but of financial firms, mainly non-bank financial companies (NBFCs), defaulting on debt instruments they sold to banks, insurance companies and mutual funds. The current round of panic began when Dewan Housing Finance Limited (DHFL), an earlier favourite of investors, financial markets analysts and the policy-making…
Economic War with no End in Sight C. P. Chandrasekhar
The tariff war with China unleashed more than a year back by the Trump administration threatens to turn into full-fledged economic war. The US claims that China is engaging in unfair trade practices and adopting coercive measures against US firms, undermining US economic interests. China not only denies US allegations, but in a White Paper released early June dismisses US claims that it reneged on agreements arrived at in the negotiations to end the war. In the press conference held to release the paper, Vice-Minister of Commerce Wang Shouwen noted that it is not uncommon for both sides to propose…
Disruption in the World of Trade C. P. Chandrasekhar and Jayati Ghosh
World trade is in deceleration mode. After having recovered smartly from 2.3 and 1.6 per cent in 2015 and 2016 to 4.6 per cent in 2017, the growth in the volume of world merchandise trade slowed to 3.0 per cent in 2018, WTO estimates show (Chart 1). The deceleration has been greater in recent quarters. Quarter-on-quarter growth rates, as estimated by the Netherlands Centraal Planbureau (CPB) indicate that trade growth fell from 1.1 per cent in the third quarter of 2018 to -0.6 per cent in the fourth quarter and -0.3 per cent in the first quarter of 2019 (Chart…
Belt and Road Diplomacy C. P. Chandrasekhar
With China having successfully convened the second Belt and Road Forum in Beijing late April, discussions on the significance, impact and sustainability of this ill-defined, even if tangible, effort at economic diplomacy have revived. That effort is the Belt and Road initiative (BRI) formally launched by President Xi Jinping in 2013. Global responses to the initiative have varied from dismissal on grounds that it is more hype than a matter of substance, to fear that it reflects Rising China’s bid for economic territory and, finally, to moves to be in on the game, and benefit in ways varying from profits…
The Spectre of Higher Oil Prices C .P. Chandrasekhar and Jayati Ghosh
On May 2, the Trump administration brought to an end the waiver the US had granted eight countries, including India, of sanctions on imports of oil from Iran. Having pulled out of the 2015 multi-country agreement with Iran to limit its nuclear programme, the US government had invoked the nuclear threat from that country to impose sanctions. The most damaging element of those sanctions for both Iran and the world’s oil importers was the ban this implied on imports of oil from Iran. Even with the waivers, sanctions had significantly reduced global oil supply. According to the International Energy Agency,…
Blind Conservatism C. P. Chandrasekhar
This year’s just-concluded spring meetings of the International Monetary Fund and the World Bank were marked by a mood of gloom among the world’s leading policy makers. As recently as January 2018 the IMF had claimed that “the cyclical upswing underway since mid-2016” was growing stronger, contributing to “the broadest synchronized global growth upsurge since 2010”. By October it felt that while “the global economic expansion remains strong”, it had “become less balanced and with more downside risks.” Now the mood is much more sombre. The IMF’s April 2019 edition of the World Economic Outlook finds that global growth has…
Making hay in the markets C. P. Chandrasekhar
India’s stock markets seem to be riding one more bubble. Between 19th February and 29th March, the Sensex rose by 9.3 per cent. The trend has not been restricted to a few stocks. The S&P BSE 100, which tracks 100 and not just 30 stocks, also rose by 9.8 per cent between those dates. In fact, financial year 2018-19 as a whole seems to have been a good period for punters, with the Sensex outperforming many global markets. Among the explanations doing the rounds is that confident of a return of a market-friendly, Modi-led government, investors are making hay in…
The Political Economy of the Modi Regime C. P. Chandrasekhar
At the end of its five-year term, the NDA government’s claim that the Indian economy has experienced rapid growth during its tenure sounds shallow. The GDP numbers many observers argue are wrong and possibly fabricated. The GDP figures have since 2011-12 been computed using some new data sources and a changed methodology, showing the economy in much better light when compared with the series with 2004-05 as base. But the change was so drastic that for the official statistical agency could not for long put out a “back series” that allowed comparison of performance across time. Scepticism about the GDP…
Housing Market Mayhem C. P. Chandrasekhar
Late in February 2019, the GST Council, prodded by the Centre, decided to modify Goods and Services Tax rates applicable to the housing sector. The declared intention was to reduce prices that home buyers would have to pay for their property. The modification, which takes effect as of 1 April 2019, involves doing away with input tax credit for residential property construction for sale and significantly reducing the GST rate applicable at the final stage of sale of housing. At present the GST rates stand at 12 per cent for normal residential housing and at 8 per cent for “affordable…
The use and misuse of Economics C. P. Chandrasekhar
When the final session, prior to the impending election, of the current Parliament ended in February, high on the list of the unfinished business of the Modi-led NDA government was its aggressive effort to rewrite the laws regulating wages and employment conditions of workers in India. While opposition by workers’ movements, trade unions (including those aligned to the ruling BJP), the parliamentary opposition and democratic opinion has managed to stall the effort, it is more than likely to be revived by future governments. The conservative legislative push of the NDA was presented not just as an effort at rationalisation that…