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

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Central Bank Autonomy and Monetary Federalism

The independence of the central bank in a market-oriented economy is no longer a disputable issue in theory but problems arise in regard to the ways in which to achieve it. As a practitioner, I would suggest devising a convention through a formal agreement between the government and central bank. It is also possible to have an epigone of a federal central bank in India if the existing regional boards of directors are given more teeth.

Resilience of Liquidity in Indian Securities Markets

Liquid securities markets are a core goal of financial sector reforms, and this has two dimensions: low impact cost and high resilience. We employ elements of evidence to suggest that equity market liquidity is robust to negative price shocks. However, bond market liquidity appears fragile when faced with negative price shocks.

Inflation Targeting

The inflation targeting framework has been successfully implemented in several developed and developing countries. However, the success of this system requires equal commitment from the government and the central bank. In the case of India, targeting inflation is politically sustainable given the overwhelming preference of the population for lower headline inflation.

Reinventing Fiscal Policy

Practising policy-makers have not been tardy in jettisoning new classical-new Keynesian wisdom when called upon to do so. It turns out that in the industrial world, stabilisation policy, defined as the minimisation of squared deviations of output around potential, has never been far from the concerns of monetary authorities. There has been a concerted move away not just from monetary policy rules but also from the limits of flexible discretion that theory would permit.

Privatisation in India

Despite the poor performance of public sector undertakings, a growing consensus to privatise them, and a transparent and effective apparatus in place, India has been remarkably slow to actually privatise. It is currently hard to get managers and politicians to go along with the privatisation of PSUs, for the private benefits accruing to them from control of these enterprises can be immense. A new privatisation scheme is proposed to undo the manager-politician nexus by putting the onus of privatisation on managers of PSUs, while using competition to restrain any giveaways.

Governance of Mutual Funds and the Institution of Trustee

The Securities and Exchange Board of India has in the recent past taken big steps in fostering good governance in the mutual fund industry, which provides an opportunity to move towards further strengthening the governance structures and institutions in the industry. This article examines a few alternative approaches to strengthening mutual fund governance through strengthening the institution of the trustee.

Monetary Policy and Bank Behaviour

This article develops an empirical model to explore the role that bank characteristics play in influencing the monetary transmission process. Employing data on Indian commercial banks for the period 1992-2004, the findings indicate that for banks classified according to size and capitalisation, a monetary contraction lowers bank lending, although large and well-capitalised banks are able to shield their loan portfolio from monetary shocks.

Liquidity Risk

This article examines why banks should be concerned about liquidity risk. It argues that the two forms of liquidity, namely, market and funding liquidity, are highly intertwined and that both are preceded by significantly large shocks to asset prices in capital markets of the economy. The implications of these observations for risk management by banks are also considered.

Regulation of Cooperative Banks in India

A spate of failures in recent years has raised concern about the working of cooperative banks. The functioning of these banks can be improved through a variety of ways, including by enabling depositors to enforce market discipline.

Cash and Cash-Equivalent Holdings of Companies

Incentives for holding cash and cash-equivalents vary. The authors suggest that companies that have more block-shareholders have a lesser incentive to hold cash and cash-equivalents. Also, monitoring by debt-holders reduces their incentive to retain excess cash. Besides, after controlling for the group affiliation, size, tangibility of assets, and profitability of the company, aggregate corporate shareholdings were also found to influence the holding of cash.

Oil Price Shock

Keeping in view the current state of the Indian economy and the recent trends in oil prices, this article first considers the impact of a permanent oil price shock in a demand deficient economy. Second, the analysis focuses on the consequences of the shock in the absence of any slack. Third, it discusses if changes in the global economic scenario accompanying the oil shock call for a modification of the results of the analysis.

A Financial System for India`s Poor

The strategies that were designed to increase access to finance for the poor have not delivered their intended outcomes. It is not just policies, but institutions and markets that need to be transformed so as to improve the efficiency of the formal rural finance sector.


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