Financial Markets and the Economy - Intersections

  (This article appeared in Business Standard on 15th December 2025, link  https://www.business-standard.com/opinion/columns/india-needs-a-serious-debate-on-monetary-policy-and-the-impossible-trinity-125121501303_1.html  ) India needs an informed debate on when and how financial stability and currency markets should shape monetary policy A foundational principle in international economics is the “impossible trinity” or “trilemma.” This asserts that a country cannot simultaneously maintain a stable exchange rate, allow full capital mobility, and pursue an independent monetary policy.  Putting inflation first The January 2014 report of the Urjit Patel Committee shaped India’s monetary policy framework. The report recognised the trilemma and recommended giving precedence to flexible inflation targeting. It then emphasised the importance of allowing flexibility in exchange rate determination, while managing volatility through a combination of capital flow management (CFM...

  (This article was published in Business Standard as a byline on 8th December 2025. Link to the article is https://www.business-standard.com/opinion/columns/let-some-capital-flow-out-so-more-can-flow-in-why-this-matters-125120801324_1.html  ) One of the most striking shifts in India’s capital market ecosystem in recent years has been the rise of the Indian household as the country’s largest provider of risk capital. This is a structural transformation that is reshaping the engines of capital formation and influencing incentives for both issuers and global investors. While a welcome trend, it carries implications that merit informed policy debate. As the Securities and Exchange Board of India (Sebi) has highlighted, retail participation in securities markets has seen more than a threefold increase over the past five years, to over 136 million unique investors now. Reflecting this trend, net domestic demand for listed equities across primary and secondary markets, through mutua...

 ( Speaking notes   for an address at the  Forex Association of India (FAI) Education Seminar – Mumbai, November 15, 2025) Good morning, friends. It is wonderful to be back with the Forex Association of India (FAI), at your education seminar. I must begin with an honest confession. After three years at SEBI, I am thoroughly out of touch with currency and macro markets. Regulation, enforcement, adjudication, board notes, and circulars tend to relegate currency markets far into the background. So, you can imagine how daunting it is for me to speak to a room full of macro market experts. Nevertheless, when FAI invited me, I accepted immediately. It certainly was not because I had discovered any new macroeconomic wisdom hidden inside a SEBI file. I accepted because this is the perfect opportunity for me to catch up on the world I have missed for three years. Once a dealer, always a dealer. Let me briefly outline what I will speak about this morning. First, I will recapitulate...

( The following was the gist of the addresses made at an Almus Conference & at a CRISIL event in December 2022)   Sustainable Capital Formation   SEBI’s mandate revolves around three key pillars – investor protection, market development, and market regulation. Put together, SEBI’s role is to facilitate sustainable capital formation, a crucial ingredient for achieving our country’s immense economic potential.   The ongoing trend of formalization has given a strong fillip to domestic capital formation. How sustainably we capitalize on this welcome trend depends on all of us scrupulously preserving and strengthening the trust in the ecosystem.   Formalization & Financialization of Savings   The ongoing formalization of our economy is on the back of better network access, increased financial inclusion, and rising digitization of payments and settlements.   On network access, Telecom Regulatory Authority of India (TRAI) data indicates that India had...

(The enclosed article appeared on moneycontrol.com per link below: https://www.moneycontrol.com/news/opinion/are-there-large-open-positions-in-indias-currency-markets-9071791.html ) Are there large open positions in India’s currency markets?   In recent times, there has been some debate around the extent of External Commercial Borrowings (ECBs) raised by Indian borrowers that are ‘unhedged’, i.e., where the borrower has left the currency risk open.    Beyond just ECBs, the larger question is whether there is any pent-up complacency or vulnerability in the overall market positioning that could give rise to one-sided currency flows depending on the unfolding news and sentiment.   One way to gauge the direction and possible extent of such positioning would be to compare RBI’s net intervention in the currency markets with the net durable flows into the market.  We find that a significant accretion to RBI’s currency buffers over the last three years was funded b...

(The following article appeared in Moneycontrol.com, link appended below:  https://www.moneycontrol.com/news/opinion/should-banks-raise-more-deposits-8990121.html ) Should the banking system “raise more deposits”? Indian banking loans are now growing more than banking deposits. As of July 15, 2022, banking credit grew by over   INR 15 lakh crores over the past year, while banking deposits grew by less than INR 13 lakh crores.    The same time a year ago, in contrast, banking credit had grown by just INR 7 lakh crores, much less than the INR 16 lakh crore growth in banking deposits.    Does this portend a funding issue that banks should look to address now? To understand this better, let us consider how the overall banking system funds itself.    Deposit creation – linkage to loans   A key route to banking deposit (and money) creation is the very act of giving fresh banking loans.   When a bank gives out a loan by crediting the borrower’s...