C. P. Chandrasekhar’s Blog

Two years after its implementation, the extent to which the Goods and Services Tax (GST) regime is an improvement upon the earlier system of multiple excise and sales taxes remains unclear. As of now, there are several worrying trends. The first is that gross GST collections are short of expectations. Thus, as against a target of Rs. 1,12,000 crore a month set for 2018-19, average GST revenues fell short of Rs. 1 lakh crore a month in that year. The shortfall is a problem especially for the states, because, while they have given up a significant part of the taxation…

On 31 July, the United States Federal Reserve System (US Fed) announced its decision to cut its benchmark short-term interest rate by one quarter of a percentage point to a target range between 2% and 2.25%. It also announced that it would put an end to its policy of selling chunks of its holdings of securities, so as to unwind its bloated balance sheet. The rate cut was indeed the first in a decade, as the global financial media reported. But, that was not why the reduction was newsworthy. It was because with the cut the Fed was, rather early,…

The Indian government’s effort to resolve by force its banking crisis with the help of the Insolvency and Bankruptcy Code (IBC) has hit yet another roadblock. Even when major secured creditors agree to a resolution plan, because they have to take a smaller haircut or loss, the IBC process may not work. This is because the tribunal at the apex of the specially constructed resolution architecture has chosen to reinterpret the Code in a manner that could make it difficult to implement that solution. The unravelling of the IBC has occurred in the long-standing Essar Steel debt default case, where…

The second Modi-led BJP government has provided, at best, an inkling of its economic agenda through its first Budget. That budget has been much discussed since the 5th of July when it was presented. However, an aspect that has not received the attention it deserves is the underlying perception of how development should be financed. Union Budgets are meant to lay out how the government plans to mobilise every rupee of its resources over the coming year, and how it plans to spend the money. To that end, tax and non-tax revenues and the proposed volume of borrowing, together with…

With India’s development strategy relying increasingly on private investors across industrial and infrastructural categories, the question of how private investment would be financed has moved to centre stage. This question has gained in significance not merely because areas earlier reserved by the public sector are now expected to be led by the private sector, but because the development finance institutions that in the past had, with state support, financed a substantial chunk of private investment are no more in existence, having been converted into commercial banks. How then has private investment been financed in recent years? Recently released flow-of-funds data…

Besides slowing growth and record unemployment, a major problem facing Indian policy makers is the fragility characterising the financial sector. With public sector banks still burdened with large non-performing assets (NPAs) and two major non-bank financial companies (NBFCs) bankrupt or near-insolvent, credit flow has turned sluggish and even a financial meltdown is a possibility. But, surprisingly, this did not seem to bother finance minister Nirmala Sitharaman, who spoke of the issue as if it is a problem that has been resolved. According to her: “Financial gains from cleaning of the banking system are now amply visible. NPAs of commercial banks…

The general election is over and a new government has been formed. But the campaign does not seem to end. More than an hour of Finance Minister Nirmala Sitharaman’s maiden Budget speech was largely devoted to underlining what she claimed were the remarkable economic achievements of the previous government. Given that legacy, she presented her role as one of expanding and strengthening the many achievements of Prime Minister Narendra Modi’s first government. To underline that, she flagged the 10 points earlier presented as a vision for the decade in the interim Budget speech. This raises two questions. First, how far…

Facebook has launched a process that would lead to the creation of a new cryptocurrency, “Libra”, in the first half of 2020. Named after a unit of weight used in ancient Rome, Facebook hopes Libra would become the dominant measure of value for transactions, at least on the internet. As is characteristic of the world of digital business that, outside of finance, has delivered the largest number of billionaires in recent decades, the creation of libra is presented as an altruistic mission that would mainstream individuals, businesses and agents who have hitherto been excluded by the financial sector. In Facebook’s…

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…