C. P. Chandrasekhar’s Blog

Early evidence of the crisis in the developed world induced by the Covid-19 pandemic is trickling in. One set of numbers provide the first estimates of GDP growth in the first quarter of 2020, which includes the period when lockdowns suddenly stopped economic activity. They relate to the US and the Eurozone, which are among the epicentres of the pandemic in the group of OECD countries. According to the US Bureau of Economic Analysis, GDP in the United States contracted by 1.2 per cent in the first quarter of 2020 relative to the immediately preceding quarter, or at an annualized…

The Reserve Bank of India is reportedly in discussion with the US Federal Reserve to put in place a rupee-for-dollar swap line. If the Fed accedes, this would be a first for India, but not for the Fed. The Fed has had temporary and standing swap arrangements with chosen foreign central banks for many decades now. With trade and financial transactions overwhelmingly denominated in dollars, governments, firms and households across the world are constantly in need of dollars to settle transactions. Periodically some of them, especially those not earning adequate dollars from their own exports, face dollar funding shortages. The…

One of the many symptoms of the economic shock resulting from the Covid-19 pandemic is a sharp depreciation of the Indian rupee vis-à-vis the dollar. The value of the rupee fell from 71.3 to the dollar on February 12 to 76.2 to the dollar on March 24, or by close to 7 per cent in a month and a half, with much of the fall occurring over the month ending March 24 (Chart 1). There is little disagreement that this downward drift was the result of the exit of portfolio capital from India, since depressed domestic demand and falling international…

With the Covid-19 shock pushing a tanking economy into recession, an unusual response from the State was expected. The government’s policy response cannot but entail a sharp increase in expenditure to cope with the medical fallout and the ‘sudden stop’ in a wide range of economic activities that the virus attack imposes. That response had to come primarily from the Centre, which has far greater fiscal flexibility than the state governments, whose revenue receipts are under strain for multiple reasons and are subject to stringent borrowing limits. Workers without regular employment displaced from their jobs have to be provided transfers…

The coronavirus or Covid-19 pandemic has put the world’s economic decision-makers and their advisors in no man’s land. The challenge they must address is visible and obvious, but the means to do so effectively are almost an unknown. It is clear that in the first quarter of 2020 the economies of most of the world’s nations would have contracted, some to a significant degree. Whether that contraction will continue and, if it does, for how long, is anybody’s guess. Speculative forays into estimating the degree of contraction in the gross domestic product (GDP) and where collapsing stock markets would settle…

In a show of solidarity, some of India’s opposition leaders have declared the much-delayed relief package (titled Pradhan Mantri Garib Kalyan Yojana) announced by Finance Minister Nirmala Sitharaman on March 26 to mitigate the effects of the Coronavirus pandemic on the poor as a welcome “first step”. But any serious scrutiny of the contents of the package, which reads almost like a hastily put together and incomplete laundry list, cannot but conclude that it is woefully inadequate even as an initial response. To summarise, there are five broad components to the package. One is a set of measures aimed at…

The cooperation between the Organisation of Petroleum Exporting Countries (OPEC) and some non-OPEC oil exporters, including oil-major Russia, to limit production and supply of oil and help hold oil prices has collapsed. In a dramatic post-Coronavirus-pandemic turn, discussions to extend this agreement among OPEC-plus countries broke down at the end of the first week of March. The agreement had been arrived at in December 2016, and had been strengthened as recently as December 2019, when production cut commitments were raised from 1.2 to 1.7 million barrels a day. The trigger for the breakdown of talks was the damaging effect that…

Even while the slow growth that followed the Great Recession endures, the world economy is staring at another recession. The OECD Secretariat has reduced its forecast of global GDP growth by half a percentage point to 2.4 per cent, which is the lowest since the global financial crisis. The immediate trigger is the coronavirus epidemic that is disrupting global economic activity. But there is a larger message being sent out by the virus onslaught. The damage that it has inflicted on the global economy and the near certainty that the damage would only intensify, has revealed the new vulnerabilities accumulated…

The revival package announced by the Reserve Bank of India (RBI) to rescue insolvent Yes Bank smacks of desperation. Having placed a moratorium on the bank’s activities and capping withdrawals by depositors at Rs 50,000, the government has called upon the State Bank of India (SBI), to lead the rescue. The SBI, which has its own share of problems to resolve, has responded with alacrity. Even before undertaking due diligence, SBI Chairman Rajnish Kumar has announced that his bank is willing to outlay as much as Rs 10,000 crore to recapitalise ailing Yes Bank and restore it to health. There…