Financial Fragility in ‘Mature’ Markets C. P. Chandrasekhar
With rising non-financial corporate debt and evidence of elevated borrowing levels among non-bank financial companies, the fragility resulting from excess leverage has returned to haunt developed country financial markets. The fact that the collapse of a little-known family office firm like Archegos Capital Management inflicted huge losses on leading banks suggests that the failure of a rogue, overleveraged speculator can have systemic effects of the kind that unravelled in 2008. Click here for full article (This article was originally published in the Economic and Political Weekly on May 15, 2021.)
Economic Divergence Gone Awry C. P. Chandrasekhar
It is the second year running in which the IMF and the World Bank have been forced by the Covid pandemic to hold their annual Spring Meetings online. But this time there was slight cause for optimism. Signs of a strong reversal of the economic downturn in the US and other advanced economies and progress, however unsatisfactory, in the drive to vaccinate populations hold out promise of a recovery. However, a troubling feature, as the April 2021 edition of the IMF’s World Economic Outlook notes, is the sharp divergence in the economic impact of the crisis and in the pace…
Asia’s Post-pandemic Encounter with Foreign Finance C. P. Chandrasekhar and Jayati Ghosh
It is by now a much-repeated story. Despite the devastation wrought by the Covid-19 pandemic, punters in global financial markets have had a field day. If there is one location where the pandemic has not been able to wreck damage, it is the market for equity and bonds worldwide. This has been true in Asia in general, and in India, as well. Having initially suffered a hit at the end of the first quarter and beginning of the second quarter of 2020, when the virulence and implications of the pandemic began to be recognized, markets soon recovered. However, evidence from…
The Long Search for Stability: Financial cooperation to address global risks in the East Asian region C. P. Chandrasekhar
Forced by the 1997 Southeast Asian crisis to recognize the external vulnerabilities that openness to volatile capital flows result in and upset over the post-crisis policy responses imposed by the IMF, countries in the sub-region saw the need for a regional financial safety net that can pre-empt or mitigate future crises. At the outset, the aim of the initiative, then led by Japan, was to create a facility or design a mechanism that was independent of the United States and the IMF, since the former was less concerned with vulnerabilities in Asia than it was in Latin America and that…
How China is offering an Alternative to the IMF C. P. Chandrasekhar
The People’s Bank of China’s network of local currency swap arrangements provide Asian countries with a much-needed safety net, while also strengthening China’s diplomatic position. For full article Click here (This article was originally published in The Institute for New Economic Thinking on April 15, 2021)
China’s Dash for Technological Leadership C. P. Chandrasekhar and Jayati Ghosh
For quite some time, China was seen as a ‘threat’ by virtue of being a global manufacturing hub, embedding knowledge in production and riding on its cheap labour force and large volumes of foreign investment, to win a disproportionate share of global markets. But more recent declarations from official Western sources focus on the threat stemming either from China’s illegal appropriation or theft of intellectual property, or knowledge for production to move up the value chain, or from China’s misuse of technology (allegedly illustrated by Huawei) for espionage aimed at advancing its increasingly aggressive security interests. These allegations are founded…
US Stimulus: Setting a new agenda? C. P. Chandrasekhar
With President Joe Biden having put through Congress and signed a $1.9 trillion American Rescue Plan, the world is set to experience one of the biggest fiscal boosts of recent times, larger than that resorted to in response to the 2008 Global Financial Crisis. Together with the $900 billion short term stimulus announced by the earlier administration end-December 2020, the level of pandemic induced Federal spending in the US is estimated at 13 per cent of GDP this year. Coming after the $2 trillion of fiscal spending last year, under the CARES Act, this is indeed a gigantic vote for…
Privatising Indian Insurance C. P. Chandrasekhar
With the cabinet approving amendments to the Insurance Act of 1938, to raise the cap on foreign direct investment (FDI) in insurance companies from 49 to 74 per cent, the process of implementing the next stage of reducing public control over Indian insurance has begun. Once legislated and implemented, the proposed increase in the FDI cap would permit foreign control over a majority of insurance companies operating in the country. Possibly to appease those among its constituents, such as some members of the Swadeshi Jagran Manch, who still espouse a version of economic nationalism, the Finance Minister promised domestic private…
Worrying spike in Global Food Prices C. P. Chandrasekhar and Jayati Ghosh
Having recovered from their lows touched early or mid-2020, food prices are rising fast. At $574.8 a metric tonne in February 2021, the price of soyabean was 53 per cent higher than the corresponding month of 2020, when the effects of the Covid pandemic were yet to be felt (Chart 1). Over that period, the price of maize had risen from $168.71 to $245.24 a metric tonne or by 45.4 per cent; of rice from $426.45 to $531 a metric tonne or by 24.5 per cent; and that of wheat from $238.98 to $$276.63 a metric tonne or by 15.8…
Fifteenth Finance Commission: A neoliberal boost to fiscal centralization C. P. Chandrasekhar
The headlines suggest that the 15th Finance Commission (15th FC) has not let down the states when deciding on their constitutionally mandated share in the divisible pool of the Centre’s tax revenues over 2021-26. It has more or less stuck with the 14th FC’s recommendation to set the states’ share at 42 per cent, reducing it by just 1 per cent to take account of the conversion of Jammu and Kashmir from a state into two union territories. It has decided to drop reliance on a combination of 1971 and 2011 population figures when deciding on the relative shares in…