C. P. Chandrasekhar’s Blog

On August 10, the government tabled a new bill in Parliament, with the aim of using its majority to push through a desperate policy initiative in the form of the Financial Resolution and Deposit Insurance (FRDI) Act. The Act seeks to create an ostensibly ‘independent’ FRDI Corporation, which would take over the task of resolution of failing financial firms from the Reserve Bank of India and other regulators. To that end, it is to be armed with special and near draconian powers to implement its mandate, and given control of the deposit insurance framework currently managed by the Deposit Insurance…

A slew of numbers released recently point to rather peculiar and contrary trends in India’s balance of payments. Exports have revived but the trade and current account deficits widen, pointing to an excess of foreign exchange expenditure relative to earnings. While the widening current account deficit points to a weakening balance of payments position, foreign exchange reserves are at record levels. The foreign exchange reserve increase is funded largely by capital flows, consisting of a very large share of investments in the debt market. Such large capital inflows are strengthening the rupee and undermining export competitiveness, which can worsen the…

The slow down and partial crisis in India's real estate sector reflects the challenges facing post-reform growth in India. Emerging_Crisis_Real_Estate  (Download the full text in PDF format) (This article was originally published in the Business Line on September 25, 2017.)

September did not begin well for the Narendra Modi government. As it prepared for a makeover in the form of a cabinet reshuffle with elections 2019 in sight, news came that India’s GDP growth had slowed significantly to 5.7 per cent during the quarter April-June. This deceleration comes in the wake of a fall in growth rates from close to 8 per cent a year earlier to 6.1 per cent during January to March this year. As is to be expected the government has chosen to attribute this trend to short term shocks, which will not dislodge the economy from…

A brief decline in portfolio inflows into equity markets has raised the question whether foreign investment flows into India have peaked. The evidence of investments in debt markets suggest otherwise. That, however, need not be all good news. Foreign_Investor_Appetite (Download the full text in PDF format) (This article was originally posted in the Business Line on September 11 2015)

The defining feature of the economic programme of independent India’s first government was to accelerate the transition to a modern economy dominated by industry. Agriculture and related activities at that time accounted for around half of GDP and modern industry in the form of factory establishments for just above 6 per cent. Thus, colonial rule had made India the victim of the barriers to productivity increase typical of predominantly agrarian economies. These circumstances influenced the Nehruvian vision that made rapid diversification in favour of manufacturing the principal economic objective. The ‘big planners’ of that time did recognize that this will…

Data on organised manufacturing production do not really capture the impact of demonetisation and its effects on demand, but looking at some sub-sectors of consumer non-durable goods provides more insight. Indian_Manufacturing (Download the full text in PDF format) (This article was originally published in the Business Line on August 14, 2017.)

The media are full of it. Viral Acharya, a recently inducted Deputy Governor of the Reserve Bank of India (RBI), has declared publicly that resolving the problem of bank stress resulting from large non-performing assets (NPAs) on their balance sheets is the RBI’s priority, taking precedence over measures such as interest rate reduction to spur growth. The issue here is not just one of preventing bank insolvency, but of keeping the credit pipe open. Banks burdened with NPAs are likely to be less willing to expand their loan books, and if interest rates are too low, banks may be unwilling…

GDP growth figures for the last few years have camouflaged a deceleration in credit growth that has affected all but the retail loans segment quite adversely. Credit_Squeeze (Download the full text in PDF format) (This article was originally published in the Business Line on July 31, 2017.)

The summit of the leaders of G20 meetings that met in Hamburg early July was nothing short of a fiasco. Outside the meeting, the massive protest demonstration and the unwarranted aggression of a huge police force made clear that these leaders lacked legitimacy. Inside, all that could be achieved was a “unanimous” communique, in which in language rendered almost meaningless by diplomacy, the contrary opinions of the leaders, especially the differences between the US and the other 19, were spelt out. To the credit of the drafters of the declaration it must be said that they managed one half-truth at…