Financial Markets and the Economy - Intersections

(The following article appeared on CNBCTV18 online on January 2, 2019: https://www.cnbctv18.com/economy/there-is-now-a-real-possibility-of-fiscal-deficit-target-slippage-1833351.htm ) A period of fiscal and monetary easing The latest central government accounts released by the Controller of Government Accounts (CGA) show the real possibility of a fiscal deficit slippage of 1% of GDP. This is even before any pre-election relief package is implemented. The finance ministry has repeatedly assured that it will meet this year’s fiscal deficit target of 3.3% of GDP. However, the impending slippage will not be easy to camouflage using usual accounting smokescreens, unless the government extracts a one-off dividend from the RBI. State and central governments are increasingly monetizing deficits to pay for current expenditures, rather than for productive investments. Our blinkered policy framework has made monetary policy an accessory to this fiscal...

(The following article appeared on December 1, 2018 in Bloomberg Quint: https://www.bloombergquint.com/opinion/dont-double-dip-into-rbis-books#gs.R94TWJk ) RBI’s balance sheet – the sequel In continuation of my earlier article on this subject (see https://www.bloombergquint.com/opinion/understanding-rbis-balance-sheet-is-it-sitting-on-excess-capital ), here are a few additional (geeky!) questions worth probing. First, if the RBI was to hypothetically transfer some “excess” capital to the government, would this necessarily require a sale of foreign currency or domestic assets by the RBI? I make the case that this would NOT be automatically necessary. Second, we know foreign currency revaluation gains do not pass through RBI’s P&L, they reflect directly into Currency and Gold Revaluation Reserves (CGRA) on RBI’s balance sheet. Can some of this reserve now be realized into P&L? I make the case that given the nature of accounting followed by the R...

(The following article appeared in Cogencis on December 5, 2018: http://www.cogencis.com/newssection/columnananth-narayan-why-keep-it-simple-norm-wont-work-for-rbi/  ) Consider the broader impact of policy instruments The RBI has access to a variety of market and policy tools. These include Open Market Operations (OMOs) and repos in government bonds, intervention in currency markets, and setting of policy interest rates through the MPC. The current approach of the RBI to restrict certain instruments for certain outcomes may be creating unintended vulnerabilities and distortions. This is visible in our monetary policy framework, and increasingly in our liquidity management as well. We may need a more considered approach to policy diagnosis and responses. Man-to-man marking and the Tinbergen principle Using a soccer analogy, RBI uses a man-to-man marking approach that links each of its policy instruments to a specific objective. Policy inter...