Do it yourself

The Reserve Bank of India has increased the policy repo rate six times in the current financial year (FY23). It has continued to withdraw excess liquidity from the financial system through various means and has mostly maintained a hawkish demeanor, insofar as the policy outlook is concerned. In spite of (i) aggressive rate hikes; (ii) withdrawal of excess liquidity from the system; (iii) sharp correction in global commodity prices (especially energy); (iv) restoration of supply chains that had got damaged during pandemic resulting in severe supply shortage of key raw materials and inputs; (vi) three consecutive normal monsoon seasons yielding bumper crops; and (vi) slow growth – CPI inflation has persisted above the RBI tolerance range of 4 to 6% and credit growth has accelerated and remained strong. Obviously there is a disconnect somewhere. Even one third of the members of the Monetary Policy Committee of the RBI do not agree with the policy stance of the RBI and have voted against...

If we have to list the reasons for the loss of growth momentum in our economy in the past decade or so, the following three would be amongst the top reasons: 1.   Credit euphoria preceding the global financial crisis and the subsequent meltdown The credit euphoria preceding the global financial crisis and the subsequent meltdown severely damaged India’s financial system. The banking system was crippled with enormous amount of bad assets; many key infrastructure projects were either abandoned or suffered inordinate delays; employment generation capabilities were impaired; private savings began to decline structurally; and overall investments also slowed down. It has taken almost a decade for the Indian banking system to clean its books and return to the path of growth, stability and profitability. Private savings and investments though still have a lot to catch up. 2.   Disruption through policy changes without adequate mitigation strategy At least two major...

 In past one year, ‘K’ has emerged as one of the most popular letters in economic jargon. Unlike past economic crisis when ‘R’ (recession and recovery) and ‘D’ (depression and deflation) were popular letters, this time a multitude of dichotomy created by pandemic is subject of popular narrative. In fact, I believe that these dichotomy in various trends was always present, but the pandemic has just exacerbated these, making them look more prominent. In past few months, a ‘K’ shaped movement has been reported in many segments. For example, consider the following – (a)    The developed world, China and few other emerging economies appear to have mostly recovered from the pandemic shock; whereas numerous emerging and underdeveloped economies are still struggling to emerge from the pandemic related losses. (b)    Another manifestation of ‘K’ shaped movement is seen in the price movement. While the Purchasers’ prices (wholesale inflation) have seen sharp surge i...

Continuing from Tuesday Repayment of Debt . Also see How will this tiger ride end? The overall poverty level in the world has seen material decline over past three decades as highly populated countries like China, India, and Bangladesh pulled millions of people out of abysmal poverty conditions; even though, this period has also seen sharp rise in economic inequalities also. The pace of poverty reduction has reduced since global financial crisis, as the flow of development aid from developed economies to the poor countries saw a marked decline; commodities dominated economies suffered due to persistent deflationary pressures; EM currencies weakened; and abundantly available credit at near zero interest rates helped the large global corporations and investors to increase their wealth disproportionately. The global economic shut down induced by the outbreak of deadly COVID-19 virus is threatening to reverse the process of poverty alleviation. Millions of people w...

Recently, the rights group Oxfam released a study titled "Time to Care", just ahead of the annual Meet-Greet-Eat-Retreat (MGER) event of the world's rich and powerful in Davos, the famous ski resort of Switzerland. The study once again highlights the burgeoning economic inequalities in the world and its potential impact on the global socio-economic conditions. The report highlights that presently the personal wealth of 2153 global billionaires is more than the combined wealth of 4.6billion, which is about 60% of the planet's human population. In Indian context, the conditions appear to be even worse. As per the report, the combined wealth of top 63 richest persons in India is more than the annual budget of the country, which was Rs24.42trn n FY19. The report further states that India's richest 1% people hold more than 4x the combined wealth of 953 million people who make up for the bottom 70% of the country's population. The statistics...