C. P. Chandrasekhar’s Blog

Severe external debt stress in several low- and medium-income countries (LMICs) has raised two questions. The first is whether we are on a trajectory that would result in a generalised debt crisis of the kind that preceded debt write-offs under the Heavily Indebted Poor Countries (HIPC) Initiative of 1996 and the complementary Multilateral Debt Relief Initiative (MDRI) of 2005. The second is that, if the less developed countries are once again vulnerable, what needs to be targeted in current restructuring efforts to prevent such recurrence in the future. In addressing these questions, it is necessary to step back from the…

At first look, the evidence is worrying. Goods exports from India in June dropped to an 8-month low of $33 billion having fallen sharply by 22 per cent year-on-year. Moreover, that decline was not a one-off event. The June fall was the seventh monthly, year-on-year export decline in nine months. That belies the government’s claim that the June 2023 growth figure was an outlier, resulting from a high base value, since in June of the previous year India recorded high monthly shipments of $42.3 billion. Rather, the downturn in exports appears to be a medium-term trend, marking the reversal of…

Even as the war in Ukraine and intensifying hostility between China and the US and its allies have increased global geopolitical uncertainties, less developed countries that host a majority of the world’s population have gained voice in an increasingly multipolar, even if less liberal, world. In utilising that space, the leadership of the G20 has proved to be an advantage, with the Presidency of that grouping shifting to ‘emerging market countries’ for a prolonged period; it was held by Indonesia over much of 2022, then taken over by India for much of 2023, and would shift to Brazil in 2024.…

Nothing, not even Hindenburg Research, seems to stop the advance of Indian big business. The Adani Group continues with its acquisitions, even if at a slower pace, and has been able to persuade financial markets to lend it more money, notwithstanding assessments that it is over-dependent on debt. Reliance Industries Limited has announced the demerger of its financial services arm to establish a new entity, which media speculation sees as a bid by the group to establish a dominant presence in the financial services industry. The demerger is being seen as a repeat of the strategy adopted by the group in…

On July 1, Sri Lanka’s parliament approved through a majority 122-versus-62 vote, a plan to restructure the government’s domestic debt totalling 15.4 trillion Sri Lankan rupees (SLR) at the end of March 2023. That is not all of Sri Lanka’s public debt though. At that point in time, of the government’s debt of $86.5 billion, only $46.9 billion was domestic debt denominated in Sri Lankan rupees, with external, foreign currency debt amounting to $36.1 billion. Sri Lanka’s crisis stems from its inability to service external debt, the interest and amortisation for which must be paid in foreign exchange. As a…

Around a month ago, The Reserve Bank of India, in a controversial circular, reversed its long-standing policy of not allowing banks to arrive at compromise settlements with willful defaulters or holders of fraudulent accounts. A willful defaulter is defined as “a borrower who refuses to repay loans despite having the capacity to pay up,” and, a fraudster as “one who intentionally cheats the bank with false documents/information and misappropriates the money.” Since the perpetrators of these criminal offences are clearly aiming to cheat banks of their money, they need to be proceeded under the law and their assets expropriated to…

By far the most significant ‘innovation’ in industrial policy under the current NDA government is the production linked incentive (PLI) scheme. It provides an incentive pay out or subsidy of 4-6 per cent of incremental sales based on domestic production. The focus is just on boosting production, since there are no domestic value addition or export sales requirements set. As Raghuram Rajan and his colleague have pointed out, using iPhone production as an example, this can encourage foreign firms to import components and equipment to assemble products here with little value addition. That seems to be okay in the government’s…

In a barely noticed development, the International Monetary Fund (IMF) has “reformed” and extended the conditions it imposes in return for emergency balance of payments support to less developed countries with stressed external accounts. The evidence of that shift comes from Ghana, the West African nation that moved from external debt stress to default in December 2022. The process is likely to be repeated in Sri Lanka. The change is the decision to require restructuring of both internal and external public debt, and not just the latter, as a condition for IMF support. Ghana is, of course, still to get IMF Board…

At the start of May 2023, the central government released yet another statement exuding optimism about the progress of India’s Goods and Services Tax regime, based on the previous month’s collections. The statement said that monthly goods and services tax (GST) collections in April had risen by 12 per cent year-on-year to a record high of Rs. 1.87 trillion. This compared with Rs. 1.60 trillion collected in March, and 1.68 trillion in April 2022. It is worth noting that simple growth in total collections is being presented as evidence of good performance, even if that growth had been preceded by…

Ministers, central bankers, officials and civil society activists returning home from Washington after the Spring Meetings of the World Bank and the International Monetary Fund held in April 2023 were not clear as to what the outcomes of the meetings, however minor, were. To the extent some of them have spoken on what they thought was achieved, opinions diverge significantly. This is of relevance because the Bank and the Fund sit, legitimately or not, at the apex of the international financial architecture. Their roles differ, though in recent times the line dividing their responsibilities has blurred. The World Bank, along…