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

C P ChandrasekharSubscribe to C P Chandrasekhar

Lucrative Defaults by Hungry Corporates

The implementation of the Insolvency and Bankruptcy Code, 2016 has led to aggressive competition to acquire firms that have been subjected to the resolution process. This suggests that the default that required the creditors to bring these firms to the National Company Law Tribunal was not due to poor fundamentals. Moreover, the decision of the original promoters to try and enter the fray as bidders for defaulting firms indicates that they too do not see the firms and the activities they are engaged in as unviable. Yet, there is much pressure on the government to favour those who seek to game the system.

The Banking Conundrum

Neo-liberal banking reform was launched in the early 1990s to address the low profitability of the public banking system and the large presence of non-performing assets. It set itself the objectives of cleaning out NPAs, recapitalising the banks and modifying banking practices to restore profitability and drastically reduce NPA volumes. This did initially have some effect. However, while the NPA ratio fell between the early 1990s and the mid-2000s, it has risen sharply since then. Moreover, while earlier priority and non-priority loans contributed equally to total NPAs, more recently, large non-priority loans to the corporate sector account for the bulk of NPAs. An analysis of these features reveals that these trends are indicative of the failure of neo-liberal banking reform in India.

In a Macroeconomic Bind

Despite it being the government’s last full budget before the general elections in 2019, the finance minister, constrained by his self-imposed fiscal deficit targets, settled for rhetoric and promises that were not backed with allocations. This frozen macroeconomic policy has foreclosed all options to adopt proactive measures that could make a difference to those who need support. Yet, the financial interests he wants to impress also seem disappointed.

Weak Note of Caution on Unconventional Monetary Policies

The prolonged deployment of “unconventional” monetary policy responses that began in reaction to the financial crisis of 2008, especially “quantitative easing,” set off speculative investments and fuelled asset bubbles. Since they cannot allow the new bubbles to give in, policymakers must persist with decisions that inflate asset prices. By doing so, they end up sitting one more bubble on the previous one. The probability that one or both may burst has only increased.

Public Bank Privatisation in a Post-truth World

The Narendra Modi government appears to have decided to privatise public sector banks (PSBs). Preparations are underway with arguments being marshalled that “there is no alternative” to privatisation. Noises of this kind have emanated often from the Reserve Bank of India (RBI) and government...

Negative Interest Rates

A near-unprecedented turn to negative interest rates to trigger a recovery has characterised the monetary policy in several developed countries and in Europe. This is the result of a shift away from fiscal policy to an almost exclusive reliance on monetary policy, involving quantitative easing and low interest rates, in macroeconomic interventions across the globe. The failure of this macroeconomic stance has led to the phenomenon of negative rates in countries other than the United States, and the first sign of even a partial recovery in that country has been enough to set off a reversal.

Erroneous Understanding of Macroeconomic Challenges

The government chose not to adequately expand budgetary expenditure to stimulate aggregate demand due to an erroneous understanding of India’s macroeconomic challenges. It relies heavily on imagined fiscal gains from demonetisation and the introduction of the Goods and Services Tax regime. The Union Budget 2017–18 was a missed opportunity for the government and our economy.

IMF's Call for Complacence

The International Monetary Fund's World Economic Outlook of April 2016 bodes that emerging market economies, including India, are at risk of sudden capital outflows. The IMF once again makes a case for its conventional, much-discredited tools to manage this risk. To repeat these recommendations, that on many occasions have only worsened crises, is to encourage complacency.

Trade in Financial Services

Liberalising global trade in services, including financial services, has been on the cards for the longest time. Services trade negotiations at the World Trade Organization may "fail" at the Doha Round, but only because there has been no progress in agriculture and industrial goods trade.

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