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Showing posts with the label Indian economy

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Indian Economy and COVID-19 Second Wave

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  The challenge in the second wave of the coronavirus orginatiing in China is managing the economy. In the previous instance of the first wave of 2020, India had gone in for an early lockdown when the cases were hardly in double digits. India had perhaps one of the strictest lockdowns in the world. This certainly managed to contain the wave and slow down the spread. The peak came something later around mid-September, partly causes by the increased flow of migrants across the country. The gravity was essentially a result of mismanagement in contact tracing by states like Maharashtra and Delhi. The lockdown took a heavy toll on the economy. The economy crashed to fall nearing 25% yoy. The lockdown also led to the recession for the first time in India. The economic scars is something government wants to avoid this time around. The economic impact and consequent social transfers led to the fiscal deficit hitting close to 10% of the GDP. There is of course a question whether India would be
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Indian Economic Growth 2020-21: Some Thoughts

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  The GDP data of the first quarter 2020-21 is out. India has experienced YOY decline of 23.4% in the Q1. It is hardly surprising. The period of the first quarter of the pandemic year 2020-21. It was a period where there was a lockdown through the country for most part of the period. In fact, the lockdown began to be eased only in the middle of May which of course triggered the migration back home of the thousands of migrant workers from Maharashtra, Gujarat etc. Therefore, even though the economy began taking baby steps once again, the paucity of labour added to the shortage. Hence there was a widespread expectation of rapid collapse in the economic growth rate. Therefore, prima facie, the quarter was an outlier. In fact, the quarter has seen decline in economic growth across the world. The US recorded a YOY decline of 30%+ while Singapore recorded a decline in excess of 40%.   There is no surprise anywhere about the direction of the global economy. As the world reels from the pan
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RBI, Onions and Monetary Policy

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The outcome of RBI’s sixth and final bimonthly monetary policy statement for the FY 2019-20 is unsurprising. Repo has been retained at 5.15% and therefore the other rates like MSF, reverse repo, bank rate etc. too remain unchanged. RBI projects a growth of 6% something in alignment with what the budget has projected. They anticipate higher uncertainty in inflation. The question however, is given the macroeconomic dynamics at the current instant, could RBI stance been bolder or was it cautious reiteration of its mandate. As one delves in to the RBI monetary policy statement (available here ) some interesting pointers emerge. Global headwinds continue to impact the Indian economy too. There is no respite for European economies like France and Italy on the continued downward growth trend. Britain will have to confront with post Brexit uncertainties. US Iran tensions may have eased down momentarily but the impact might take a time to ease out, US-China trade wars demonstrate ebbs an
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Recapitalization, Economy and Moral Hazard

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The budget of FY 2020-21 is on the anvil. Incontestably, the Indian economy is performing below par. Without doubt, the Modi government has its task cut out in energising the animal spirits. Despite some contraction, there continues to exist a current account deficit. By almost all accounts, fiscal deficit is likely to breach the target. The high level of NPAs coupled with prospective NPAs are making banks reluctant to lend. Firms are saddled with high debt and thus unable to generate fresh investment. The reluctance of the banks to lend until existing balance sheets are cleaned is aggravating the problem. To add to the woes, is low capacity utilization thanks to lower aggregate demand. The NBFC collapse compounds the misery on the consumer lending front.   Partially, the decline in automobile sales is on account of contraction in lending by non-banking institutions. In the backdrop, economists and industry experts have argued for the recapitalization plan for the banks, housing
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