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Showing posts from July, 2017

On Political Activism

This is more of a pronouncement in theory, a look into the excess that makes possible peeping into alternatives, or more specifically economics as an object that escapes or rather exceeds finite human comprehension. What has been contentious is the extant of neo-liberalism. Since, we are all caught up in the global financial crisis, and the alternatives from the left not forthcoming, inoculation from the global finance appear all the more distant. Neo-liberalism, as we have known it has changed its form, and with the difficulty of representation associated with it, social imagination often wanders far and wide in trying to stake its claim on a legitimate political alternative. This change in form, however has not completely left the underlying grounds uninhabited, with movements coming in to reside, albeit temporarily. This is significantly attributable to their discourse clinging on to diatribes of neo-liberal orthodoxies, and missing out on augmenting latent capacities. In short, if I…

Electronic Money versus Paper Currency: The Case of Central Banks’ Monetary Policies

If electronic money is issued through the conversion of banknotes or sight deposits, it does not change the money supply and price stability is not endangered. However, if electronic money is issued as a consequence of credit, private issuers have incentives to supply additional amounts of electronic money as long as the difference between the interest charged on the credit and the one paid on electronic money covers the credit risk premium, the provision of the payment service, and possibly also the cost of refinancing. Given the low marginal cost of producing electronic money, its issuance could in principle proceed until the interest rate charged on the credit extended for the provision of electronic money is equal to the credit risk premium. This, by lowering the level of interest rates, could in turn endanger the maintenance of price stability. The risk of overissue would be limited by two factors which increase the costs of issuing electronic money, thereby limiting its supply:…

Momentum of Accelerated Capital

Distinct types of high frequency trading firms include independent proprietary firms, which use private funds and specific strategies which remain secretive, and may act as market makers generating automatic buy and sell orders continuously throughout the day. Broker-dealer proprietary desks are part of traditional broker-dealer firms but are not related to their client business, and are operated by the largest investment banks. Thirdly hedge funds focus on complex statistical arbitrage, taking advantage of pricing inefficiencies between asset classes and securities. Today strategies using algorithmic trading and High Frequency Trading play a central role on financial exchanges, alternative markets, and banks‘ internalized (over-the-counter) dealings: High frequency traders typically act in a proprietary capacity, making use of a number of strategies and generating a very large number of trades every single day. They leverage technology and algorithms from end-to-end of the investmen…

India diverts Rs 56,700 crore from the fight against climate change to Goods and Service Tax regime

This news has been causing quite a few ripples, with the most daring allegation being that of siphoning of funds, thus standing in contrast to India's commitment to Paris Accords. Well, the reality goes a bit deeper than merely reductionist. In what way, this happens is eloquently dissected by Anirudh Rajan


In an effort to redistribute indirect tax revenues to industrially backward states, a conceptual change in the mode of taxation proposed by the Goods and Services Tax reform was to shift accretion of taxes to the place of consumption from the place where goods are produced or services rendered. Manufacturing states, primarily those unencumbered with ties to the central government, fearing reduced tax revenues inevitably opposed such plans. To achieve consensus, a compensation was agreed upon which would make good any fall in revenues arising from GST levy, for a period of 5 years. To fund such, an increased tax rate for certain commodities (luxury and demerit goods) was initia…

Private insurers reap a windfall from crop cover scheme

Farmers’ distress is likely to cause yet more trouble to the government.  Contrary to Agricultural Minister Radha Mohan Singh’s claim that insurance companies, mostly in the private domain, have not unduly benefited from the Pradhan Mantri Fasal Bima Yojana (PMFBY), official data shows that they would have made a windfall of over ₹16,700 crore in 2016-17. Participating in a debate in the Lok Sabha on Wednesday on the farmers’ condition, many Opposition party leaders alleged that the crop insurance scheme had been designed in such a way that private insurance firms were favoured. Read more of the news here...
Anirudh Rajan writes The Pradhan Mantri Fasal Bima Yojan (PMFBY) is turning out to be a textbook case of how modern welfare policies are conceptualised to benefit priavte interests.
The scheme, launched in January 2016, aimed to make crop insurance available to all farmers, covered by the scheme and limit the premium payable by the famer to a range between 1.5% to 5%. (1.5% - Kharif,…

In Praise of Libertarianism

Devotion to free markets is a sin??? Nah!!!. Like quantitative induction and philosophical deduction, economics has always had a political purpose, and the purpose has usually been libertarian. Economists are freedom nuts, which is to say that they look with suspicion on lawyerly plans to solve problems with new state compulsions and longer jail sentences. Economics at its philosophical birth, among physiocrats in Paris and moral philosophers in Edinburgh, was in favor of free markets and was suspicious of overblown states. Mostly it still is. Let things be, laissez faire, has been the economists’ cry against intervention. Let the trades begin. True, not all economists are free traders. The non-free traders, often European and disproportionately French, point out that you can make other assumptions about how trade works, A’, and get other conclusions, C’, not so favorable to laissez faire. The free-trade theorem, which sounds so grand, is actually pretty easy to overturn. Suppose a b…

FINANCING POWER IN INDIA: GENERIC TRENDS

Banks and Infrastructure Finance Companies (IFCs) are the predominant sources of financing of power sector in India. Balance sheet size of many Indian banks and IFCs are small vis-à-vis many global banks. Credit exposure limits of banks and IFCs towards power sector exposure is close to being breached. Any future exposure seems to be severely constrained by balance sheet size, their incremental credit growth and lack of incentives to lend to power sector. The desirability and sustainability of sectoral exposure norms of the banks in the future may be examined in view of the massive exposure of the banks and projected fund requirements for the power sector.



Further, any downgrade in the credit rating of power sector borrowers would adversely impact the ability of the major NBFCs viz. PFC and REC to raise large quantum of funds at a competitive rate from domestic as well as international capital markets. In such a scenario, the sources of funds available for power sector projects are ex…