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

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Road Map for Structural Reforms in Budget 2019

There were great expectations of fast-tracking reforms in the budget. However, it disappoints in setting a road map for creating a virtuous cycle of investment and growth. On the fiscal front, the overambitious revenue projections raise questions of credibility and feasibility of containing the deficits at the budgeted level. The wait for banking and financial sector reforms continues. The selective increases in import duties are retrograde, and increase in the taxes on the super-rich complicates the tax system without much gain in revenues. The centralisation through the levy of surcharges does not match the lip service given to cooperative federalism .

Financial Literacy and Financial Inclusion

Using district-level data, the effect of financial literacy centres on financial inclusion in India is investigated. There is evidence of an improvement in the use of bank accounts over time. Robustness tests suggest that banks with a strong capital position and asset quality are more inclusive through their financial literacy centres, and the traditional bank agents continue playing an important role in this process despite non-traditional channels like mobile telephony. Yet, the findings show that the overall impact of financial literacy on bank account ownership is still limited. The analysis raises useful policy pointers to address those impediments that plague the process.

Monetary Policy Transmission in Financial Markets

In the Indian context, a key question is addressed: What has been the influence of monetary policy on different segments of the financial markets? Constructing a structural vector autoregressive model with the monetary policy rate, the pattern of monetary transmission to financial markets is examined over three distinct periods of regime changes in the Indian monetary policy and liquidity management framework. The empirical evidence indicates that there is sufficient period-specific transmission of monetary policy across the different segments of the financial markets. While the transmission of monetary policy to the money and bond markets is found to be fast and efficient, the impact of the policy rates on the forex and stock markets is limited.

Understanding Systemic Symptoms of Non-banking Financial Companies

The riskiness of banks (public and private) and non-banking financial companies listed on the stock exchange is examined by measuring their extent of interconnectedness at the lowest tail (1%) quantile. Using the macro risk and balance sheet variables under the directional connectedness framework, this study finds the underperforming periods of Indian banks and NBFCs. The findings are consistent with the systemic risk rankings of the Reserve Bank of India for the domestic banks and systemically important NBFCs.

Government Securities Market

Over 2017–18, there was a sharp rise in Indian government securities interest rates unrelated to fundamentals. Examining each of the standard explanatory variables shows them to be inadequate to account for the rise in bond yields in this period. Turning to aspects of Indian structure, the reason is found to be the narrow focus of monetary operating procedures, with excessive reliance on making up liquidity shortfalls with short-term liquidity, which was inadequate given large exogenous durable liquidity shocks, including foreign inflows. The composition of liquidity, share of reserve money and its sources all matter. Open market operations have a significant impact on yields. Large foreign debt inflows induce open market operations sales as G-Secs are swapped for foreign securities to sterilise the effect of inflows on the money supply. G-Secs yields are then found to rise.

Central Banking in India

The flow of events and ideas behind central banking in India, in four distinct phases since independence—1950–70, 1970–90, 1990–2010, and post 2010—is narrated. The 1950–70 period is characterised as one of planned fiscal dominance, while the 1970–90 period has seen the dominance of the fiscal and financial sector with an inward-looking bias. Although there was partnership in crisis management and reform between the Reserve Bank of India and the government during 1990–2010, the period witnessed some differences between the government and the RBI in the areas of monetary management and external sector. The period since 2010 is broadly categorised by the rebalancing and adoption of a new framework, like inflation targeting.

Internet Search Engines and Two-sided Markets

Internet search engines provide a vital platform for various groups to interact and create value. On the one hand, they help users find answers to their search queries, and on the other, search engines monetise their free search services by selling advertisements to connect potential buyers with sellers. An exploration of the economics of search markets is presented along with a discussion about the economic literature on two (multi)-sided markets. There is also a discussion of issues with the developments in the antitrust case pertaining to Google in India.

Conflict between Regulation and Competition Law in the Indian Telecom Sector

The debate regarding the respective realms of competition law and economic regulation is not new. In the Indian context, complaints filed against the telecom incumbents Airtel, Vodafone and Idea by Reliance Jio before the Telecom Regulatory Authority of India and the Competition Commission of India bring to the fore such an example. This case is analysed primarily through the legal standpoint, and it is argued that competition law intervention is warranted only in “gap” cases: where the regulatory regime cannot account for consumer welfare. Where the regulatory and competition agency reach conflicting decisions, the issue can be resolved by a third body whose decision is binding on both the regulator and the competition agency.

Information and Communications Technology Markets

The economics of the information and communication technologies industry is discussed, along with features of the Competition Act, 2002 and its relevance to the “new economy.”In the context of three cases—the Multi-Commodity Exchange Stock Exchange case in India, the Microsoft/Netscape Navigator case in the United States, and the Deutsche Telekom case in Europe—the concept of “relevant market” is explored, and observations are made on features such as two-sided markets, network effects and innovation, and on strategies such as vertical integration and predatory pricing.

Challenges of Competition and Regulation in the Telecom Sector

The telecommunications sector has come a long way from its perceived status as a natural monopoly to a competitive multiplayer industry. As competitive forces, both from within the telecom industry and the surrounding digital ecosystem, continue to redefine the sector’s dynamics, it creates new challenges for regulation and competition enforcement. Calling for fresh thinking on the respective roles of the sectoral regulator, the competition authority and the need for greater synergies between them, a model for voluntary cooperation between the authorities is suggested.

Repurposing NSSO Data for Market Definition

The definition of the relevant antitrust market is a critical first step in a competition economics investigation. For certain products, publicly available data in the form of the large sample household consumption expenditure survey can be used to implement small but significant and non-transitory increase in price tests for a range of consumer goods at different levels of geographic aggregation. Demand elasticities for a set of consumption goods are estimated through use of the Heckman sample selection model, which corrects for sample selection biases and specification errors that appear in survey data. Among other things, the conditions under which biased elasticity estimates lead to overly wide or overly narrow market definition are also illustrated.

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