C. P. Chandrasekhar’s Blog

Sri Lanka’s economy is sliding into chaos­ afflicted with multiple crises­, triggered by a steep fall in foreign exchange revenues during the Covid pandemic, a difficult to manage external debt servicing burden, a collapse in the volume of foreign exchange reserves, and finally the ripple effects of the war in Ukraine. Between January 2020 and mid-March reserves have fallen by as much as 70 per cent to around $2.4 billion. A collateral trend that compounds the crisis has been a sharp depreciation of the Sri Lankan rupee. At the end of the first week of March the central bank that…

Global inflation, the launch of a monetary tightening cycle in the US with increased interest rates, depreciating exchange rates and the fall out of the war in Ukraine, are forcing many countries to borrow their way out of balance of payments difficulties. This, however, is not the best time for that manoeuvre, given the uncertainty that overwhelms the global financial system. Yet, one country that seems less affected by these circumstances is India. Despite outflows of foreign capital from India’s financial markets in the first quarter of 2022, the stock market has not fared too badly. And the official assessment…

While the world remains preoccupied with the geopolitical and humanitarian fallout of the Russian invasion of Ukraine, its economic consequences are increasingly a matter for concern. Though the two countries at war account for less than two and one half per cent of the world’s population, it emerges that the damage to production within their boundaries and the suspension of their trading relationship with rest of the world threatens a crisis in multiple markets, not least in the markets for food and oil where shortage abound and prices are rising. This is are typical illustrations of the entangled fate of…

Following Russia’s irrational and devastating invasion of Ukraine, global energy markets have been in turmoil. Russia is the third largest producer of oil in the world and, more importantly, the world’s largest exporter of oil and gas and the second largest exporter of crude oil after Saudi Arabia. In December 2021, it exported 7.8 million barrels per day (mb/d), of which crude and condensate accounted for 5 mb/d, or 64 per cent. So, disruption of supplies from that country are bound to roil energy markets. The evidence is as expected. Prices of oil and natural gas that were recovering from…

In her budget speech 2022, the finance minister claimed that the centre pieces of the budgets for both the current financial year (2021-22) and the next (2022-23) are sharp increases in capital expenditure driven by enhanced public investment. That expenditure would not only strengthen infrastructure in seven areas (Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure), she argued, but have multiplier effects that would crowd in new private investment and raise the rate of growth. According to figures in the budget, capital expenditure did increase by 41 per cent from Rs. 4.3 lakh crore in 2020-21 (actuals) to…

In recent years, when the economy as a whole performed poorly, reports on how old and new businesspersons accumulated huge volumes of wealth in short timespans have been commonplace. There is also evidence that conspicuous consumption is on the rise. This has led observers to conclude that income and wealth inequality in India has increased. Hard evidence on the extent of that increase is difficult to come by. One reason is that official surveys of trends in income in different income classes are not available. Using consumption surveys and treating consumption expenditure as a proxy for income does not help.…

In early December, the State Bank of India (SBI), which dominates the country’s banking sector announced that it had entered into a partnership with Adani Capital, a private sector non-bank finance company (NBFC). The aim was to engage in “co-lending” to farmers to help them buy tractors and farm implements, and in the process increase efficiency in farm operations and raise productivity in farming. The announcement surprised many and angered quite a few. That response was partly influenced by the perception that the Adani group, being close to the current government, was receiving favourable treat ment in multiple are, that…

State governments in India are experiencing a fiscal crisis that would adversely impact their development and welfare expenditures in the coming years. As per the revised estimates for 2020-21 collated by the Reserve Bank of India, after averaging 2.7 per cent of GDP over 2012-17 and 2.5 per cent of GDP over 2017-20, the gross fiscal deficit of the states rose sharply to 4.7 per cent of GDP in pandemic year 2020-21 (Chart 1). The revised estimates (RE), which are available towards the end of the fiscal year, have in the past been adjusted downwards when final figures become available…

The near relentless bull run on India’s stock markets seems to be faltering, with signs of a descent from recent peaks. These signs of investor reticence are visible across emerging markets, with India being one of the better performers. While short-term international and domestic developments are blamed for that reticence, there is a more serious fear keeping policy makers and central bankers awake in these emerging market economies. That is the prospect of an exit of foreign investors from their equity and bond markets, consequent to a readjustment of monetary policy in the advanced economies. Across the world, there is…

In recent weeks the media have featured stories bordering on the alarmist about a coal shortage in India. Coal inventories with thermal power plants had fallen to levels at which major country-wide power outages seemed inevitable. Fortunately, that has not (as yet) materialized, but it is indeed true that coal inventories with the power producers did collapse from the equivalent of around 30 days requirement to that for a couple of days or more in the case of many plants. According to data from the 135 plants with over 165 GW of installed generation capacity monitored by the Central Electricity…