ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Can Payments Banks Succeed?

Recently, the Reserve Bank of India has begun licensing a new kind of retail bank, called payments banks, for the hitherto financially excluded. The regulator’s argument that technological innovation will allow payments banks to achieve a seemingly impossible trilemma of financial inclusion while still being competitive and profitable is examined. The article concludes that amelioration of this trilemma will require the regulatory orientation to fundamentally change, and for the state to provide a kind of public good to all payments banks.

Open Letter to Finance Minister

We, the undersigned, are writing to draw your attention to two urgent priorities for the forthcoming budget.

Role of ‘Fintech’ in Financial Inclusion and New Business Models

The convergence of finance and technology to provide financial services by non-financial institutions, popularly known as “fintech,” has come to dominate the financial landscape. Taking stock of this development, its impact and implications for new products, processes and services, including for financial inclusion are examined. The Jan Dhan–Aadhaar–mobile phones trinity provides fertile ground for fintech to permeate to the “last mile.” Notwithstanding its manifold benefits, there is a need to exercise caution in areas such as privacy and ownership of data. In a fast-paced world of rapidly evolving technology and related financial services, regulators have new paradigms to grapple with and therefore, need to be proactive so as to not stifle the growth of this nascent sector.

Appreciating Rupee: Changing Paradigm?

This paper discusses the volatility behaviour of the rupee dollar movement. Analysing data on the forward premium in the rupee dollar forward market from 1997 to 2002, the authors attempt to understand the dynamics of the forward market and also, how optimal hedging works. This analysis shows that contrary to what an `efficient markets' perspective would predict, the forward premia systematically exceeds rupee depreciation, implying that there is an asymmetric advantage to sellers of dollar forwards.

Issues in Regulation of Insurance

In the Indian insurance market, the regulator must assure new entrants of a level playing field vis-a-vis hitherto monopoly incumbents. The initial focus of the regulator must be on financial soundness and prior experience of entrants. Tariff and contract standardisation must also be done in the initial stage. The objective of serving the weaker sections of society will be better served with a separate instrument.

Life Insurance in India

This article presents an overview of Life Insurance operations in India, and have identified the emerging strategic issues in light of liberalisation and the impending private sector entry into insurance. The need for private sector entry has been justified on the basis of enhancing the efficiency of operations, achieving a greater density and penetration of life insurance in the country, and for a greater mobilisation of longterm savings for long gestation infrastructure projects. In the wake of such coming competition, the LIC, with its 40 years of experience and wide reach, is in an advantageous position. However, unless, it addresses strategic issues such as changing demography and demand for pensions, demand for a wider variety of products, and having greater freedom in its investments, LIC may find it difficult to adapt to liberalised scenario.

Rising Food Prices and Rural Poverty-Going Beyond Correlations

Going Beyond Correlations Introduction HOW does an increase in the relative price of food (RPF) affect rural poverty in India? This question begs an analytical and empirical understanding, and many pages of this journal have been recently devoted to a discussion and debate over this question. Sen (1996) claims that econometric models which include RPF1 along with other explanatory variables such as agricultural productivity and public development expenditure result in a much better explanation of pre-reform and post- reform poverty, than econometric models which ignore RPF. Furthermore Sen shows that RPF does better in tracking poverty than the inflation rate. Ravallion (1998a) uses 24 observations of the NSS rounds from 1958 to 1993-94. and obtains a correlation of 0,76 between poverty (the head count ratio, HCR) and RPF,2 Although this confirms the claim made by critics of the economic reforms of a strong positive correlation between measured poverty and RPF, Ravallion rejects the explanation that this correlation is driven by the adverse distributional effect of changes in relative food prices, and maintains that the correlation is due to the mean effect, via, depressed mean per capita consumption. In rebutting Mohan Rao's [Rao 1998] objection that econometric tests of distributional impact, which ignore d ecile specific changes in real income lead to misleading conclusions, Ravallion (1998b) claims that his conclusions are on solid ground si nee (a) EngeI expenditure curves3 are flat for the poorest four deciles and (b) using the Consumer Price Index for Agricultural Labour (CPIAL) actually overestimates the loss of real income to the poor, since their budget shares on food are lower than What the CPIAL assumes.4 While the last word might not have been said in the debate on the distributional consequence of a rise in RPF, in this paper while we comment on the correlation aspect, we wish to nudge the debate a bit away from the correlation issue and into a territory far less contentious. Specifically we will discuss (a) who among the rural poor are unambiguously hurt by rising RPF-the 'net purchasers of food;;(b) what is the received wisdom on the mechanism by which rising RPF is supposed to benefit the rural poor (the 'terms of trade' and the supply response), and why it might not work, and finally (c) what should be the appropriate mix of policy that goes along with the reforms induced rising food prices. In this paper we take it as an incontrovertible observation that economic reforms have led to an increase in food prices. The explanations for this may be varied5 and sometimes opposites of each other, but the crux of the matter is that economic liberalisation along with structural adjustment has meant that input subsidies are lower, and output (food) prices closer to international prices, which are typically higher than domestic prices.6 One of the sources of controversy surrounding the question of higher food prices and benefits to agriculture, is the theoretical possibility that the resultant surge in demand for rural labour, and hence wages, might more than compensate for the rise in food prices.

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