Deadly and frightening as it appears, it is still too early to estimate the severity of India’s Covid-19 second wave. Unlike the transatlantic countries where it appears to have peaked, India’s second wave is still trending upwards. While the second wave is more devastating, India’s unpreparedness is evident. India needs to recognise that such pandemics will come again. It needs to diversify and secure its supply chains, vaccine output, and upgrade its poor healthcare infrastructure. The Indian economy has been badly hit by the pandemic, with one of the highest output losses amongst major economies. One of the possible reasons for this is the limited fiscal support despite a stringent lockdown, with most of the heavy lifting done through monetary measures. Going forward, its economy needs to overcome several challenges before it can return to its former high growth trajectory.
Monetary policy has emerged as an important tool of economic policy both in developed and developing economies. The monetary and financial system is far more complex today than it has been in the past. Financial intermediation has reached a high level of sophistication, which has itself become a source of concern. The impact of monetary policy action can be transmitted through a variety of channels, some of which though recognised in the past, have become more important. While the traditional issues such as the objectives of monetary policy and the possible trade-off among them remain relevant, they need to be related to the far-reaching changes in the institutional environment at home and abroad. The changing objectives of monetary policy, newly evolving instruments of monetary control and the transmission mechanism and issues related to autonomy in the pursuit of monetary policy are examined.
The recently published Report on Currency and Finance, 2020–21 of the Reserve Bank of India reviewed the performance of the flexible inflation targeting regime in India. In the light of stylised facts, cross-country experience, and detailed econometric results, the report seemed to suggest that despite several shocks (like demonetisation or introduction of the goods and services tax), a combination of good policy and luck have worked in favour of the success of the FIT regime in India. Going forward, while advocating some nuanced, subtle changes in the operation and administration of the FIT regime, the report called for its continuation as a strategy of monetary policy in India.
This article looks into the reasons for the large non-performing assets of the Indian banks, particularly public sector banks, and the various steps taken by the government and the Reserve Bank of India to tackle the issue of bad debts.
The new proposal by an RBI Internal Working Group to allow large corporate/industrial houses to float banks poses various risks for the banking sector.
For macroeconomics, the government is divided into the central bank and the treasury. Positive profits recorded by the first are cancelled out as a negative item in the second. However, a debate has been generated by the transfer by the Reserve Bank of India of a record surplus to the coffers of the overnment. The issue is examined in a stock-flow-consistent model. A tension is found to reside in the pledging of profits for advances to banks on the one hand, and reducing the government budget deficit on the other. In the case of India, we conclude that central bank profits are intended to substitute for taxation.
Careful research on the inflation targeting regime’s impact on anchoring inflation expectations, as well as an empirical examination of convergence, is used to assess the direction of convergence between core and headline inflation, as well as the efficacy of the expectation channel compared to the aggregate demand channel of monetary transmission. There is evidence of more anchoring, with the Reserve Bank of India communications as well as headline inflation affecting short-run inflation expectations and core inflation dominating in the long run.
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.
When defaulting borrowers are unable to pay their overdue amounts, the matter invariably lands up with the courts for settlement through a court-regulated process of lenders taking possession of assets and their sale. However, recently some borrowers have challenged the resolution scheme designed by the Reserve Bank of India. The outcome of the judiciary-led resolution processes in the past and the recent judicial intervention are examined.
