India has now missed two opportunities to convince firms to Make in India, the first in the 2010s when China began to lose competitiveness in low-tech products and the second more recently, when Chinese political risks started to increase. Unexpectedly, a third golden opportunity has now arrived at our doorstep thanks to the global tariff-war. This time, we must ensure that we seize it. In my latest Business Standard column I argue however, that the government’s plans to safeguard growth and benefit from this opportunity, are not yet clear.

The government has announced that it is ending the Production-Linked Incentives (PLI) scheme--a sensible decision considering the flaws of the program, but questions remain. How does the government plan to take advantage of the forthcoming exodus of companies from China? And how will the government encourage private sector investment?

Funding vs Liquidity: The conundrum of Indian banks

The Reserve Bank of India has been easing short-term liquidity pressures in the banking system through various tools, but these are no substitute for the stable, long-term funding banks need to support credit growth. In an article with Harsh Vardhan I argue that the core issue is long-term availability of stable funding—mainly through deposits or long-term bond issuances. India’s banking system find itself in a delicate balance—supported by liquidity interventions but hindered by long-term funding gaps.

During 2023-2024, the average annual volatility of the rupee-dollar exchange rate was 1.8% – the lowest in over two decades. Through multiple kinds of interventions, the Reserve Bank of India had been effectively pegging the rupee to the US dollar, thereby ushering in a sudden shift in the exchange rate regime. In this Big Ideas recording for the xKDR forum, I unpack the RBI’s currency strategy, discuss the problems associated with it and recommend a way forward.

Relatedly, in this I4I blogpost (co-authored with Ila Patnaik and Radhika Pandey) I talk about why sudden and sharp lowering of currency volatility by the RBI, in an economy with a relatively open capital account, is deeply problematic.

Since November 2024, the RBI seems to have allowed the rupee to weaken against the US dollar. However, it has continued to intervene in the FX market to limit the rupee’s decline. In my latest Macro Pulse article in the Business Standard, I describe why the RBI's currency management strategy is undermining the effectiveness of its monetary policy.

Union Budget 2025-26: Did it address the growth concerns?

The Union Budget was presented against the backdrop of a slowing economy and hence, could have seized the opportunity to chart out a medium-term economic strategy for reviving growth. In this episode for Puja Mehra’s podcast, The Core, I argue that the Budget fell short of expectations, and also discuss why the tax-relief announced for salaried Indians is unlikely to spur demand in a meaningful way.

In the middle of 2023, the Indian economy was growing at a healthy rate of more than 8 percent. By the September 2024 quarter, growth had fallen to less than 5½ percent. Official data is plagued by measurement issues, but this slide does seem to reflect reality because it is confirmed by several high frequency indicators. Clearly, there is a growth problem in the economy. I argue in an article in the Indian Express that even though other growth drivers such as consumption and private investment remain subdued, there is one major opportunity waiting to be seized. And for that, India needs to reverse its protectionist stance and adopt a well-defined export-led growth strategy, the critical component of which would be minimising risk and policy uncertainty.

Union Budget 2025-26: Time to revive the reforms agenda

Given the current economic climate, in the upcoming Budget, the FM will have to find a way to announce policy initiatives to revive growth while also achieving fiscal discipline. In my new monthly column in the Business Standard titled “Macro Pulse”, I argue that while calls for tax cuts and increased infrastructure spending are loud, this Budget must do a lot more to drive high, sustained growth. The Budget must revive a key element missing from India’s economic agenda: Reforms. Since the 2017 GST rollout, no major reforms have been introduced. Many say that no new reforms are needed since all the key policy initiatives have already been adopted. But this is not true. There is in fact much that needs to be done.

In the run up to the Union Budget the government has received an unexpected bounty from the RBI in the form of a Rs 2.11 lakh crore dividend, significantly more than what was anticipated. This is going to play an important role in shaping this year’s budget. There has been a lot of discussion about how the government should spend this windfall. I argue in an article in the Indian Express that in an economy that is apparently growing at 7-8%, the government should use the surplus dividend to further lower the fiscal deficit. If however, the official data is misleading and the economy is not doing very well, then we should not be surprised if the budget uses the surplus dividend to announce a further increase in infrastructure spending.

A deep dive into Indian economic history

In a recent episode of the Seen and the Unseen podcast with Amit Verma, I take a deep dive into the evolution of the Indian economy from 1947 onwards. A sense of history may help us understand how we got here, where we went wrong, what we got right, and how we should look at the Indian economy going forward. We divide the eight decades into 4 main phases: i. 1947 to 1966 : Indian economy under PM Nehru ii. 1966 to 1990: Continuation of central planning under PM Indira Gandhi and beyond iii. 1991 to 2011: The liberalisation reforms followed by a high growth phase iv. 2011 to present: A secular slowdown of the Indian economy compared to the boom period of the 2000s.

Problems in India’s official data

In the post-independence period, India had a world-class statistical system but over the years the quality and strength of that system have slowly but steadily become significantly diluted. In recent years, the credibility of India’s official statistics has hit rock-bottom. The entire statistical system has been mired in controversy especially since the new GDP series was released in 2015. In a recent Big Ideas recording for the xKDR forum, I highlight some of the major data issues that the economy has been suffering from. I argue that while some steps are being taken now to look into the issues, given the deep-seated damage that has persisted for several years, it will take a long time for trust in the system to get restored.

On 1 February 2024, the Finance Minister presented the Union interim budget for the year 2024-25. Given the high levels of fiscal deficit and public debt, the crucial question in the run-up to the budget was whether the government would continue on the path of fiscal consolidation that it had embarked upon in 2022-23. As I discuss in my article “the what-if of growth” published in the Indian Express, the interim budget not only met but exceeded expectations in this regard. However, the assumptions on which the fiscal projections are based might turn out to be over-optimistic. With the drastic reduction in the government capex, it will also be interesting to see what drives growth in the Indian economy going forward, given that private investment continues to be weak and an exports boom is unlikely amidst a global slowdown.

Private credit market in India

Worldwide, non-financial companies typically depend on debt capital from banks or bond markets, or equity capital from public or private markets for external financing. Over the last few years, this landscape has been witnessing a new development – the emergence of the private credit market. In our article published in the Ideas for India, Pratik Datta and I discuss this phenomenon in the Indian context. We describe the broader trends in the credit landscape that created a conducive environment for the emergence of AIFs in India, touch upon some of the regulatory challenges presented by these funds, and discuss how such a credit market can relieve some of the pressures faced by the banking system. 

Integrating finance and macroeconomics

In the Fall semester of 2023, I designed a new course, titled the Role of Finance in Macroeconomics for the 2nd year MSc and PhD students of IGIDR. Every modern market-economy needs a well-functioning financial system. The study of macroeconomics is incomplete without an understanding of how the financial system works, how it impacts various facets of the economy and how it in turn gets influenced by economic forces. The objective of this course is to give the students a comprehensive idea about the intersection points between these two fields of study.

While in most cases the references are drawn from a vast literature focused on
developed economies, throughout the course the narrative is heavily influenced by examples from the Indian economy. The approach is application and policy oriented, and data-driven.

Talking about the Indian economy

Over the last 8 years, I have delivered multiple talks and participated in several discussions on various aspects of the Indian economy in public forums. I have now aggregated the videos of some of those talks in one YouTube page which I will keep updating as and when new content becomes available.

The year 2022-23 saw an unusual confluence of factors all of which resulted in an extraordinary performance of Indian banks, after a prolonged phase of banking sector woes. In an article (co-authored with Harsh Vardhan), we conjecture that the road ahead seems bumpier with credit growth showing signs of a slowdown, bank margins peaking and almost certain to decline. Moreover, growth in the Indian economy as a whole is expected to slow down in 2023-24 owing to significant global headwinds. It will be interesting to see how the banking sector manoeuvres through this phase.

Banks settling with wilful/fraudulent defaulters

On June 8, the Reserve Bank of India set out a framework for bank settlements with defaulters. This circular has attracted widespread criticism because it covers settlements with fraudulent and wilful defaulters implying to some that the RBI is condoning their crimes. In an article published in the Indian Express (co-authored with Pratik Datta), we argue that banks are commercial enterprises which must be permitted to operate accordingly. In principle, separating a commercial decision such as loan recovery from criminal proceedings against wilful defaulters is a step in the right direction. The RBI’s circular however highlights two important issues plaguing India's banking sector: government ownership of commercial enterprises and, weaknesses in regulatory governance.

RBI ‘aligning’ with the inflation target

Inflation targeting central banks all over the world use limited and precise language to communicate their monetary policy strategy for the sake of transparency and accountability - two critical pillars of an IT regime. In its latest monetary policy meeting on June 8, the RBI introduced a new phrase to communicate its future strategy - aligning with the inflation target. In an article (co-authored with Harsh Vardhan) we argue that the introduction of this new terminology could inadvertently create ambiguity which could end up hurting the credibility of India’s IT framework.

For researchers interested in investigating the monetary transmission mechanism in India, we have constructed high-frequency measures of monetary policy shocks.  In a paper (co-authored with Aeimit Lakdawala and forthcoming in the Journal of Money, Credit and Banking) we show that OIS rates can be used to construct these shocks and these are reliable outside of the 2007-09 financial crisis period. We have now made the data publicly available. We recommend researchers use the updated 2-day window shocks. We will be updating these shock measures regularly, so please check the website for the latest version.

RBI’s commitment to IT

How credible is the RBI's commitment to inflation targeting? In an article published in Ideas for India (based on a recent paper, with Vaishali Garga and Aeimit Lakdawala), we ask a simple question: With the adoption of IT, did financial market participants believe that the RBI is serious about keeping inflation under control? We use a variety of survey forecasts to study how economic agents changed their beliefs about the RBI's actions after the adoption of IT. We find that from 2015 onwards till the start of the pandemic in 2020, markets did indeed believe that the RBI was more responsive to inflation. This is consistent with an important goal of IT: making the central bank more transparent and credible in its fight against inflation.

Analysing two recent policy actions

In an article published in the Times of India, I argue that two recent policy announcements -withdrawing 2000 rupee notes from circulation and imposing a 20% TCS (tax collected at source) on all international card transactions made by Indians on their foreign travels, are likely to create uncertainty and undermine confidence in the government's policy framework. This is detrimental in the current juncture when economic growth is slowing down and private investment continues to be subdued.

India’s credit landscape

The economic shock caused by the Covid-19 pandemic and longstanding structural issues like the NPA crisis resulted in low bank credit growth in India. In an article (co-authored with Harsh Vardhan), we highlight the trends in and composition of credit growth over the last decade across borrower-classes. We also discuss the emergence and rise of AIFs, and FinTechs as providers of credit, and the opportunities and regulatory challenges that come with it. 

Just as it seemed the world had come to terms with a certain level of uncertainty that was triggered last year by the US Fed tightening monetary policy, the Russia-Ukraine war and the COVID resurgence in China, a new source of uncertainty sprang up over the last few weeks – financial stability concerns in the US economy as manifested through the collapse of the Silicon Valley Bank (SVB). In an article published in Money Control (co-authored with Harsh Vardhan), we highlight the lessons that can be drawn from this episode for Indian banking and regulation and also argue that this event will bring back into focus the age-old policy dilemma around price stability vs. financial stability.

Potential macro repercussions for Indian economy

The macroeconomic repercussions of the financial market turmoil in the US could be felt far away in India, even if our banking system does not immediately face the same kind of problems. How might the US situation play out, and what does it imply for the Indian economy? I attempt to answer these questions in an article published in the Times of India.

Should monetary policy be used to target financial stability?

The collapse of SVB has raised questions about the impact of the US Fed’s monetary policy on the stability of the banking system. More generally it has brought back to fore a fundamental question that central banks all over the world have been grappling with for a while now – should financial stability be given priority over inflation in the conduct of monetary policy? In an article in Mint (co-authored with Harsh Vardhan), we argue that monetary policy should not be used to target financial stability; it should instead remain focused on its core mandate of price stability and growth.

Did bond yields respond to RBI’s actions during the pandemic?

In a recent paper, (co-authored with Bhanu Pratap and Aeimit Lakdawala), we find that the RBI’s actions early in the pandemic were helpful in providing an expansionary impulse to the bond market. Specifically, long-term bond interest rates would have been meaningfully higher in the early months of the pandemic if not for the actions undertaken by the RBI. These actions involved unconventional policies providing liquidity support and asset purchases. We also find that the RBI’s forward guidance was more effective in the pandemic than it had been in the couple of years preceding the pandemic.

The Union Budget for 2023-24 seems to have ticked all the right boxes as regards macroeconomic stability and fiscal prudence. In my article “An uncertain fiscal math” published in the Indian Express, I argue that while the Budget aims for fiscal consolidation, questions remain on the credibility of the fiscal math. And, while the steep increase in capital expenditure has been widely lauded, it conveys a worrisome message. The government clearly feels compelled to do the heavy lifting of investing and boosting demand in the economy because the private sector is not investing in capacity expansion.

Lingering concerns on inflation

Now that the FM has presented a Budget which is neither populist nor expansionary, all eyes will be on the RBI as it gets ready to announce the monetary policy on Feb 8. In my article “RBI needs to remain vigilant on inflation” in today’s Hindustan Times, I argue that while inflation in India seems to be on a downward trajectory, the RBI must be cautious about taking its foot off the pedal.

IBC and corporate bond yields

The Insolvency and Bankruptcy Code (IBC, 2016) has strengthened the creditor rights in the event of a borrower defaulting, and is considered a watershed event in the commercial credit landscape in India. In a new paper, Harsh Vardhan and I empirically investigate the impact of the IBC on credit spreads in the corporate bond market, using a novel data-set.

We find that post IBC, credit spreads declined for the non-financial firms in the private corporate sector, though the impact is relatively moderate. It is plausible that a few years after IBC was implemented, the general discontentment in the financial markets regarding the effectiveness of the bankruptcy law may have dampened the effect on credit spreads.

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How credible is the fiscal consolidation?

The Union Budget for 2023-24 seems to have ticked all the right boxes as regards macroeconomic stability and fiscal prudence. In my article An uncertain fiscal math published in the Indian Express, I argue that while the Budget aims for fiscal consolidation, questions remain on the credibility of the fiscal math. And, while the steep increase in capital expenditure has been widely lauded, it conveys a worrisome message. The government clearly feels compelled to do the heavy lifting of investing and boosting demand in the economy because the private sector is not investing in capacity expansion.

Lingering concerns on inflation

Now that the FM has presented a Budget which is neither populist nor expansionary, all eyes will be on the RBI as it gets ready to announce the monetary policy on Feb 8. In my article RBI needs to remain vigilant on inflation in today’s Hindustan Times, I argue that while inflation in India seems to be on a downward trajectory, the RBI must be cautious about taking its foot off the pedal.

IBC and corporate bond yields

The Insolvency and Bankruptcy Code (IBC, 2016) has strengthened the creditor rights in the event of a borrower defaulting, and is considered a watershed event in the commercial credit landscape in India. In a new paper, Harsh Vardhan and I empirically investigate the impact of the IBC on credit spreads in the corporate bond market, using a novel data-set.

We find that post IBC, credit spreads declined for the non-financial firms in the private corporate sector, though the impact is relatively moderate. It is plausible that a few years after IBC was implemented, the general discontentment in the financial markets regarding the effectiveness of the bankruptcy law may have dampened the effect on credit spreads.

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