Wicked Loans and Bad Banks C. P. Chandrasekhar

The crisis created by non-performing assets (NPAs) on the balance sheets of commercial banks, especially public sector (PSBs), does not go away. It only intensifies. An environment that triggered large inflows of foreign capital and a surge in credit after 2003 encouraged banks to explore new areas and terms of lending, which are responsible for the large exposures that are now turning bad. Having encouraged that environment with its policies, the government had been pretending that the problem is not serious enough to warrant emergency action. The reason was that it wanted to do the impossible: resolve a big problem…

Budget 2017-18: The Macroeconomic Perspective C. P. Chandrasekhar

Even for those sceptical about the government’s declared policy intentions—varying from cleaning the Ganga to doubling farmers’ incomes by 2022—the subdued and insubstantial Budget 2017-18 was a surprise. The circumstances in which the Budget was presented were exceptional. In the midst of a slowdown in growth with signs of the onset of deflation[i], the government had chosen to withdraw and declare worthless more than 80 per cent of the value of currency in circulation by demonetising “higher value” notes. But new notes to replace the ones withdrawn were slow in coming and had to be rationed, because the indefensible measure…

Budget 2017-18: Blinded by neoliberalism C. P. Chandrasekhar

In an insipid speech that was repeatedly misread, Finance Minister Arun Jaitley presented on 1 February the contours of a budget that was shockingly short of substance. It left disappointed those who expected that policies to compensate sections hurt by the demonetisation experiment would be included and those who were looking for some measures to counter the demand slump afflicting the economy that had been aggravated by the demonetisation. It also surprised those who thought that the budget would be forced to expand aggregate expenditure and social spending to win voter support in the elections to the five assembly elections…

Power: The web of debt C. P. Chandrasekhar

The state of Jharkhand has reportedly stopped payments to the Damodar Valley Corporation (DVC) for the 700 MW of power the later supplies it every day. The evident reason is that it has not been able to cover payments for the power it acquires from the generators and supplies to its customers, resulting in deficits that are covered with debt that it is no longer able to service. A consequence of this would be an inability to purchase power from the generators, increasing their losses and affecting the debt they in turn owe the banks. With this debt being a…

No Digital Base for a Cashless Economy C.P. Chandrasekhar

Prime Minister Modi is selling the idea that the engineered cash shortage that resulted from the disastrous demonetisation exercise is an opportunity to force-march India to being what is inelegantly termed a “less cash” society. In his view, that transition, if ensured, would for some inexplicable reason tame the rich and reward the poor. This new sloganeering of the Prime Minister and his government has given the “Digital India” mission a whole new dimension, with electronically-executed financial transactions and settlements becoming a means to realising larger economic and social objectives. Making this an immediate, or even medium term, objective is…

Trump’s Protectionist Charade C. P. Chandrasekhar

As January 20th, the day Donald Trump assumes his Presidency nears, the fear that he would turn US trade policy in a protectionist direction appears to increase. Protection against import competition and an attack on global relocation and outsourcing by American firms that are seen as destroying jobs in the US and immigration that is viewed as depriving the American working class of available livelihoods were central elements of the populist rhetoric that swung the white working class in Trump’s favour. Key items in Trump’s election campaign promise list were policies to recapture American jobs by clamping down on the…

The Budget after Demonetisation C.P. Chandrasekhar

Having announced that it is advancing the date for presentation of annual budgets by a month from end-February, the Finance Ministry is in the midst of preparations for next year’s exercise. But with the attention of economic analysts diverted to the unfolding crisis created by the government’s demonetisation decision, little attention has been paid to what would be the first budget to be presented in the post-planning era. It was to be expected that the implicit and explicit rules adopted by the government to make allocations under different heads of capital and current expenditure would have attracted much attention. But…

Banks as victims C. P. Chandrasekhar

In the outcry against the disastrous demonetisation experiment of the Modi government one aspect that has not been given adequate attention is the damage it has done to the reputation and the balance sheets of the banks. Customers queueing before bank doors and ATMs seem on occasion more forgiving of the government than of the harassed bank employees, who are forced to ration out currency and offer those customers they can accommodate, less than even the maximum withdrawal permitted by the government and the RBI. When new notes are discovered in inexplicable sums in the hands of rogue operators, it…

Finance Capital and the Nature of Capitalism in India Today C.P. Chandrasekhar

A distinctive feature of the current phase of capitalism is the growing role of finance capital as an instrument to establish capitalist hegemony and facilitate the appropriation of surplus. In the developed countries this transition towards financial hegemony was the result of the inflationary crisis and stagnation that affected the OECD countries after the late 1960s. The contractionary fiscal and monetary policy response to inflation intensified the deceleration in real growth. This together with the low real interest rates on bank deposits adversely affected banking business and profits. These developments triggered a process of deregulation and liberalisation in the financial…

Demonetisation: All pain for the majority C. P. Chandrasekhar

At the time of writing, chaos continues to prevail at bank branches and ATMs across India, reflecting the larger truth that the government has for no sensible reason frozen a major part of India’s payments and settlements system. The government did this by declaring, for reasons wrong and indefensible, that currency notes of Rs. 500 and Rs. 1000 denomination which accounted for more than 85 per cent of the value of notes in circulation (and around 25 per cent in terms of sheer numbers) would not be legal tender within four hours of a dramatic speech by the Prime Minister…

Uncertain Media Future C. P. Chandrasekhar

In today’s troubled times, mega-mergers are the norm. Announcements of marriages like that between AB Inbev and SABMiller in the beer industry or Bayer and Monsanto in the agribusiness sector attract attention that soon fades, even as the difficult task of getting clearances from the regulators continues. But the just announced agreement to merge by AT&T and Time Warner, in a $85 billion deal, is likely to remain in public discussion for some time. If it does not, it should. This is a mega merger not just in any industry like the production of cigarettes or beer, but in the…

How is India Inc Doing? C.P. Chandrasekhar

Growth in India’s non-financial corporate sector shrank in 2015-16, after three consecutive years of “steep moderation” according to the Reserve Bank of India (RBI). In its annual study of the Performance of the Corporate Business Sector, the RBI attributes this downturn to “lacklustre demand”, echoing the sentiments of many businessmen who have been unwilling to strongly articulate this perception in the face of the hype on growth fed by schemes like “Make in India” and “Start-up India”. But, actual trends in the economy do not seem to provide much ground for satisfaction, let alone celebration. One factor that tends to…

The Hegemony of Finance C. P. Chandrasekhar

Three parallel developments that caught media attention over the last month point to the restoration of the hegemony of Finance Capital in the years since the 2008 crisis. They also reveal the likely consequences of the neoconservative backlash, led by Finance, against post-crisis financial sector reform in the US and other developed countries. One was the decision of the Financial Sector Protection Bureau (FSPB) of the US, an institution created after the 2008 crisis, to arrive at a settlement with Wells Fargo (WF) in an investigation relating to a rather shocking discovery. More than 5000 employees of the bank had,…

Agribusiness: Consolidating against the farmer C. P. Chandrasekhar

In an acceleration of a trend towards mega-mergers in the agribusiness area, German pharma and agrochemicals major Bayer has announced an all-cash $66 billion deal to take over American seed major Monsanto. To clinch the deal, Bayer raised its initial bid thrice from $122 to $128 a share, to touch a level that implies a 44 per cent premium over Monsanto’s early-May stock market price. On the surface, the deal seems to bring together firms with activities that complement each other. Monsanto is a controversial seed company producing genetically modified seeds for different crops, while Bayer is focused on agricultural…

Revving Up the Bond Market C. P. Chandrasekhar

In the final stretch of his tenure as Governor of the Reserve Bank of India, Raghuram Rajan chose to make one more effort at revving up India’s bond markets. A number of measures aimed at galvanizing the debt market, culled out of past studies and extended by the H.R. Khan Committee set up under Rajan, have been announced. These measures have also been welcomed by all those who see the absence of a vibrant corporate bond market as a major weakness of the Indian financial structure. The thrust of the measures is to expand the market for and increase the…

An Overburdened Instrument C. P. Chandrasekhar

On August 9, RBI Governor Raghuram Rajan released the last bi-monthly monetary policy statement that would be drafted under his leadership. No changes were made: the benchmark ‘repo’ rate was kept at 6.5 per cent, the cash reserve ratio at 4 per cent and the Statutory Liquidity Ratio at 21.5 per cent. According to the RBI, growth in this fiscal is projected at 7.6 per cent because of the beneficial effects of the good monsoon and the expansionary effects of the implementation of the 7th Pay Commissions recommendations. So growth is not an immediate problem. But, in the view of…

Dangerous Embrace: India and International Finance Capital C. P. Chandrasekhar

Financial liberalization, aimed in the first instance at attracting foreign finance capital to India, is the centrepiece of the neoliberal growth strategy India chose to adopt 25 years back. That was indeed a dramatic change. In 1947, controls on and regulation of foreign investment were seen as prerequisites for ensuring autonomy from predatory foreign capital, and strengthening the political freedom that had been won. Since 1991, however, economic success has been measured by neoliberal advocates by the confidence that foreign investors have in the Indian economy, reflected in the volume of cross-border inflows of foreign capital, especially foreign finance capital.…

The Post-1991 Growth Story C. P. Chandrasekhar

July 1991 is widely seen as a watershed month in Indian economic policy making. That was when the Indian government openly declared that it was unwinding the interventionist regime which had been in place since Independence, involving controls on economic agents, regulation of markets, a large public sector and an a priori plan as to how economic resources should be allocated. In the period to follow, policy, it was then argued, would dismantle this excessively interventionist framework, and establish and support a system driven by private initiative and relatively unfettered markets, with minimal regulation and control. The State was to…

The Business of Wilful Default C. P. Chandrasekhar

In the fourth round of what has become a periodic exercise, the All India Bank Employees Association (AIBEA), the “oldest and largest” trade union in the industry, has released a list of 5,610 wilful defaulters on debt they owe commercial banks. In the AIBEA’s view the failure to reduce, let alone prevent, such defaults is badly damaging bank balance sheets. The fact that attempts at recovery have also been tardy and quite unsuccessful is not helping either. The official listing of suit-filed accounts of wilful defaulters disseminated through the Credit Information Bureau (India) Ltd, reports 6,081 cases involving loans totaling…

The IMF’s Call for Complacence C. P. Chandrasekhar

A specter that haunts a number of so-called emerging markets, including India, is that of a sudden outflow of capital, either because of exit of foreign investors or because of the flight of resident capital. That fear has increased in recent times for two reasons. First, after capital inflows to these economies shrank during the crisis of 2008, they registered a sharp revival and then surged when large quantities of liquidity were infused into the world economy to save the banks and stall the downturn in the developed economies. This increased the stock of footloose capital in these economies, which…