Financial Markets and the Economy - Intersections

 (Versions of the following article appeared in Ideas for India & Mint today, links below: https://www.ideasforindia.in/ topics/money-finance/budget- 2021-22-case-for-a-bad-bank. html https://www.livemint.com/industry/banking/how-to-make-india-s-bad-bank-workable-11613911668500.html ) The Case for a Bad Bank One of the key announcements in the 2021-22 Union Budget was around the formation of a ‘bad bank’. As outlined in the Budget speech by Finance Minister Nirmala Sitharaman:  “ The  high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books. An Asset Reconstruction Company (ARC) Limited and Asset Management Company (AMC) would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization.”   Why would such an ARC be needed, when we already have an Insolvency and Ban...

 ( The following article appeared in The Hindu on February 1st. A version of this also appeared in Bloomberg Quint. Both links are appended below: https://www.thehindu.com/opinion/op-ed/the-finance-minister-has-delivered-but-the-road-ahead-is-long/article33721241.ece https://www.bloombergquint.com/business/budget-2021truth-and-reconciliation) Budget 2021 – Truth & Reconciliation    Today’s Union Budget was presented under severe circumstances.   The National Statistical Office (NSO) estimates that our Covid-19 impacted economy will contract by -7.7% in the current fiscal year 2020-21 (FY21). While severe, this estimate likely does not incorporate the significantly higher distresses amongst many of our micro, small and medium enterprises.    Thankfully, there are silver linings. We have avoided a second wave of Covid-19, and the worst is hopefully well behind us. Economic activity is rebounding – witness the encouraging GST collections of a record Rs 1.2...