Rs 2000 note exchange will not have any impact on black money. It will only help hoarders by exchanging Rs 2000 notes without disclosing their identity In its decision to withdraw Rs 2000 currency notes from circulation announced on May 19, 2023, the Reserve Bank of India (RBI) has stated that they will continue to be legal tender. The notification issued in this regard states:- “…in pursuance of the “Clean Note Policy” of the RBI it has been decided to withdraw the Rs 2000 denomination banknotes from circulation. The banknotes in Rs 2000 denomination will continue to be legal tender.” From the above, prima facie one gets a sense that it is not a demonetization exercise as it happened over...
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Category: Money, inflation & interest rate
Inflation versus growth: RBI’s dilemma
Too much reliance on monetary policy instruments such as a hike in repo rate is of little help Having already increased the repo rate or RR (interest rate at which the Reserve Bank of India lends to banks) by a cumulative 2.5 per cent in the past 11 months, the RBI’s six-member Monetary Policy Committee (MPC) on April 6 voted unanimously to keep it unchanged at 6.5 per cent. However, RBI Governor Shaktikanta Das pledged to hike the RR again if needed, saying the decision to pause was “for this meeting only”. In 2016, the Government put in place an institutionalised framework, the MPC, to formulate monetary policy and determine the key interest rates. It mandated the RBI to fix...
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Under IBC, protecting minority shareholders
The soul of IBC mechanism lies in timely detection of stress in a firm and selling it as a ‘going concern’ The Securities and Exchange Board of India (Sebi) has proposed a framework to protect the interests of public equity shareholders in case of listed companies undergoing insolvency proceedings under the corporate insolvency resolution process (CIRP) of the Insolvency and Bankruptcy Code (IBC). In 2016, the Modi Government enacted the IBC. This legislation overrides all other subsisting laws and gives a strong handle to the banks for resolving non-performing assets (NPAs) of lenders. In 2017, it amended the Banking Regulation Act (BRA), giving RBI powers to force banks to act if they don’t on their own. On February 12, 2018,...
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RBI should pause rate hikes, boost growth
Since inflation is driven primarily by supply-side factors, the RBI should avoid too many interest rate hikes In 2016, the Government had put in place an institutionalised framework, the Monetary Policy Committee (MPC), to formulate monetary policy and determine the key interest rates. It mandated the Reserve Bank of India (RBI) to fix rates, especially the repo rate or RR (interest rate at which the RBI lends to banks), in such a manner as to maintain inflation—as represented by the consumer price index (CPI)—within the target range of 4 per cent (+/- 2 per cent) for a five-year period ending March 31, 2021 (the mandate has now been extended for further five years ending March 31, 2026). In the case...
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Eschew greed, boost demand
Irrespective of their size or industry sector, all businesses are structured to result in concentration of income in the hands of their owners Even as industries and businesses — both domestic and foreign-owned large corporations — expect the government to formulate policies and take fiscal measures to stimulate aggregate demand to put the Indian economy on an ‘accelerated’ and ‘sustained’ growth trajectory. A key question that needs serious introspection is: What are they doing in pursuit of this overarching goal? An analysis of the financials of India’s largest companies — those comprising the BSE 500 index — with focus on revenue, profits and dividend payouts, over the past five financial years (FY) gives us some clues. The profits of corporations...
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RBI hikes repo rate but more is needed
While there is no guarantee that the RR hike will tame inflation, we can’t rule out the risks to growth Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 per cent to 4.4 per cent. He also increased the cash reserve ratio (percentage of a bank’s total...
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RBI changes gear, finally
Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May, 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 percent to 4.4 percent. He also increased the cash reserve ratio (percentage of a bank’s total deposits that it needs to maintain with the RBI as liquid cash; the bank does not earn interest on this liquid...
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Strengthening IBC framework, really?
Faced with ballooning NPAs, the Modi government enacted the IBC in 2016 While putting on hold its plans to implement the so-called “fresh-start process” for indebted poor people under the Insolvency and Bankruptcy Code (IBC), the government wants to first focus on bolstering the IBC architecture to yield quick resolution of toxic assets. The reference here is to the delay in completion of the corporate insolvency resolution process (CIRP) as well as the low amount realised by creditors from their non-performing assets (NPAs) — a fancy nomenclature for bad loans. Let us capture a few basics. Faced with ballooning NPAs, the Modi government enacted the IBC in 2016. This legislation overrides all other subsisting laws and gives a strong handle...
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Bolstering IBC architecture – a joke
While, putting on hold its plans to implement the so-called “fresh-start process” for indebted poor people under the Insolvency and Bankruptcy Code (IBC) (it provides for debt waiver up to Rs 35,000 to the poor who don’t own houses, earn up to Rs 60,000 a year and have assets up to Rs 20,000 each), the government wants to first focus on bolstering the IBC architecture to yield quick resolution of toxic assets while preventing unscrupulous elements from gaming the system. The reference here is to the delay in completion of the corporate insolvency resolution process (CIRP) as well as low amount realized by the creditors from their non-performing assets (NPAs) – a fancy nomenclature for loans that are difficult to...
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Shun accommodative stance policy, now
Reduction in the repo rate or pumping of more liquidity is ill-advised as without any guarantee of propelling growth, it will yield negative outcomes In its bi-monthly Monetary Policy Committee’s (MPC) review announced by RBI Governor Shaktikanta Das on December 8, the policy repo rate or RR has remained unchanged at 4 percent. The reverse repo rate or RRR is also unchanged at 3.35 percent. Besides, it has retained an ‘accommodative’ policy stance for as long as necessary. This is the ninth consecutive time since last August that both policy rates have remained unchanged. Das justified saying, “given the slack in the economy and the ongoing catching-up of activity, especially of private consumption, which is still below its pre-pandemic levels,...
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