C. P. Chandrasekhar’s Blog

The timing of the Modi government’s announcement of a hike in the minimum support prices for kharif crops suggests that this may be another of its tall claims not backed by the financial allocations needed to deliver on them. According to a recent Cabinet decision of the National Democratic Alliance (NDA) government, a large proportion of India’s farmers are to be offered the opportunity to sell their crops to the government at a minimum support price (MSP) that covers costs and provides for a margin of 50 per cent, starting with this kharif season. Together with measures like loan write-offs…

Recent months have been marked by an exit of foreign investors from India’s financial markets, triggered by the end of quantitative easing in the US and Europe and hikes in policy interest rates in the former. This has resulted over the last few weeks in a sharp depreciation of the rupee relative to the dollar, which not only raises the rupee costs of imports, but also the rupee equivalent of payments made to service foreign debt. That has meant that India is now paying the price for a legacy of debt built up during the years when the Federal Reserve…

Neoliberal economic policy—the framework of measures that preaches market fundamentalism but uses the state to engineer a redistribution of income and assets in favour of finance capital and big business—has lost its legitimacy. A huge financial crisis and a decade of recession or low growth, that have hurt most sections except the elite 1 per cent, have convinced the majority in many countries that neoliberalism is no alternative. That change in mood was revealed by the Brexit vote and the Trump victory among other developments. However, this has not setback but unleashed a new aggression on the part of the…

The rupee, which has been sliding in value for some time, has depreciated sharply in recent weeks, giving some cause for concern. The depreciation is largely against the rising dollar, relative to which its value has fallen by more than 7.5 per cent since the beginning of the year. The RBI’s reference rate which stood at Rs. 63.4 to the dollar on 5 January 2018 had touched Rs. 68.4 to the dollar by 24 May 2018 (See Chart). Depreciation relative to other major currencies like the British pound, the euro and the yen, has been much less. Yet, the fall…

Much of the writing on Walmart’s purchase of a dominant 77 per cent stake in Flipkart, touted for long as India’s answer to Amazon, is focused on its size. At $16 billion, of which $14 billion goes to buy up the stakes of investors such as SoftBank from Japan and Naspers from South Africa, it is reportedly the biggest acquisition in the global e-commerce area, and way larger than $3.3 billion that Walmart paid for US web retailer Jet.com in a deal considered the largest purchase of a US e-commerce startup. With some existing shareholders exiting, Walmart now shares ownership…

As fiscal year 2017–18 drew to a close, the Government of India decided to bite the bullet and implement a proposal to “resolve” what was being presented as one of the leading challenges then facing the Indian economy: large non-performing assets (NPAs) on the books of the banks, especially the public sector banks (PSBs).The Recapitalisation plan, first announced in October 2017, involved infusing ‘2.11 lakh crore of new equity into the PSBs, of which ‘1,35,000 crore would be new money from the government, financed with recapitalisation bonds. Another ‘18,139 crore was the balance due under the ‘70,000 crore Indradhanush plan…

The deadline for the completion of the resolution process under the Insolvency and Bankruptcy Code (IBC), 2016 for the first set of cases taken up has neared or even passed. The IBC provides for a time limit of 180 days (extendable by 90 days) once a case of default is brought to the National Company Law Tribunal (NCLT), following a joint decision of creditors accounting for a dominant share of claims on a company. If no resolution plan drawn up under the supervision of a resolution professional can be agreed upon, liquidation must follow to recover whatever sums are possible.…

On the morning of April 24, the price of Brent crude, the global benchmark for oil prices, rose above $75 a barrel, touching its highest level since 2014 and signalling the return of an era of high oil prices. That is a $30 per barrel or 66 per cent rise from the previous low of around 10 months ago. As expected, this has made oil importers nervous. But, despite the benefits it would bring US shale producers, even President Donald Trump is rattled. In one more of his infamous early morning tweets he declared: “Looks like OPEC is at it…

Even while optimistic assessments of growth trends in the global economy proliferate, concerns that the unwinding of inflated asset price markets could abort the recovery are being expressed. Interestingly, there appears to be a substantial degree of agreement on the cause for such uncertainty, which is an excessive dependence on monetary measures in the form of quantitative easing and the associated extremely low interest rate environment to address the post-crisis recession. That lever was not the most effective from the point of view of lifting growth. While the early resort to fiscal stimuli delivered a sharp recovery, the retreat from…

By passing full-fledged industrialisation and depending on services for growth is not a bad idea says the International Monetary Fund. In the April 2018 edition of its World Economic Outlook, the IMF has endorsed a trajectory that India is known to have pursued in recent years. Characterised by an unusual process of structural transformation, that trajectory involves an early turn to services when the share of agriculture in aggregate output and employment declines with development. This contrasts with the traditional turn to manufacturing at relatively low levels of per capita income. In an India-type process, services rather than manufacturing would…