Economic Times ⁽²¹⁸⁾

Economic Times, March 31 2020 Corona epidemic, which originated in China in December 2019, has now reached 175 out of a total of 195 countries in the world. No past pandemic has spread this widely and this fast. And we are far from seeing the proverbial light at the end of the tunnel. Until a definite cure and vaccine against the virus are found, the threat will loom. India too is in the midst of this calamity. An extra-ordinary challenge requires an extra-ordinary response. Thankfully, the Prime Minister has acted decisively and confidently. India is now on a 21-day lockdown. Short of this action, risks for India were huge. The Prime Minister couldn't have been more right when he said that without the 21-day lockdown, the nation risked being setback by 21 years. To be sure, the lockdown asymmetrically disadvantages those living hand to mouth. One can argue that even the poor can survive for a week with the help of their better off neighbors, fellow villagers and those for whom they work. But a period of three weeks without…

February 3, 2020 There is much in Budget 2020-21 that I like. But it also has a serious shortcoming in one area requiring urgent course correction. I discuss below three specific provisions in the budget that would serve India well before turning to the one that greatly worries me. First, despite calls from many quarters to go on a spending spree, the Finance Minister has chosen to stay course on fiscal discipline. The level of public sector borrowing, inclusive of deficits in the budgets of central and state governments plus off budget borrowing, is already estimated to be in excess of 9% of the GDP. Therefore, pushing the central government fiscal deficit to 4.5% as desired by some analysts would have starved a private sector already short of investment funds yet more. At a time when the economy is struggling to accelerate growth, crowding out of highly productive private-sector investment is not a winning strategy. Second, the government has initiated the reform of personal income tax system by offering to lower tax rates to those willing to forego nearly all…

The govt needs to make the Insolvency and Bankruptcy Code speedier, more transparent and hazard-free.Read full article Two features of the regulatory regime have been central to the current malaise in India’s financial sector. First, until 2015, contrary to international best practice, RBI rules permitted banks to classify restructured loans as standard assets rather than downgrade them to non-performing status. Second, until the Insolvency and Bankruptcy Code (IBC) came along in 2016, the process of exit for defaulting firms and recovery of loans from them was cumbersome, costly and protracted. In good books Fearful that recovery of loans in default would be partial and take a long time, bank managers preferred to restructure loans before they went into default. Under the rules, restructured loans retained their status as standard assets. The incentive to follow this practice was especially high in public sector banks (PSBs), since any write-downs on loans in the event of default and partial recovery carried the risk of attracting the attention of vigilance agencies. As a result, restructured loans with little prospect of full recovery piled up, especially…

RCEP would have been an easier agreement for India to sign, as compared to any other pacts with US or EU.Read full article Earlier this week, India announced that it was dropping out of the Regional Comprehensive Economic Partnership (RCEP). Its exit came amid a wide array of assertions from commentators — with some claiming that India’s past trade agreements had harmed its economy and that RCEP would do worse, others going further to demand a return to the inglorious days of ‘selfsufficiency’, and yet others insisting that the withdrawal reflected the weakness of the government against the efforts of protectionist lobbies. What were the actual outcomes under India’s past trade agreements? Did they hurt the Indian economy? What lessons do they hold for India with respect to RCEP or other future trade deals?

Partially motivated by efficiency considerations, but largely driven by fiscal squeeze, the government has made some progress in cutting its stake in PSEs since the launch of reforms in 1991.Read full article There is broad agreement among economists that governments should only enter activities that serve a public purpose. Defence, education, health, infrastructure and poverty-reduction programmes fulfil this condition. With some exceptions, manufacturing and services do not. For instance, government manufacturing steel or running hotels serves no public purpose. Instead, this public money could be freed up for investments in infrastructure or education, with private firms filling the gap in the manufacture of steel and running of hotels. Indeed, not having the luxury of the government underwriting their losses and having to compete in the marketplace, private enterprises have agreater incentive to improve efficiency and cut costs.