Covid-19 crisis: Response should not undermine institutions

Covid-19 crisis: Response should not undermine institutions, Ideas for India, December 15, 2020.

India's banking sector: a liability for monetary policy effectiveness?

India’s banking sector: a liability for monetary policy effectiveness?, East Asia Forum, October 16, 2020.

With high inflation, capital inflows, currency appreciation, tough decisions are needed

Indian Express, September 16, 2020

In a recently released report, the Reserve Bank of India mentioned that an appreciating currency will help contain imported inflationary pressures. This has given rise to a fervent debate as to whether the RBI is no longer able to handle the Impossible Trilemma. The Impossible Trilemma, an important paradigm of open economy macroeconomics, asserts that a country may not be able to stabilise the exchange rate, and conduct an independent monetary policy when it is financially integrated with the rest of the world.

Policymakers in all sophisticated economies face this trilemma, forcing them to make choices about which targets they are going to pursue. The RBI has tried to avoid these choices: It has tried to pursue all three objectives simultaneously in an especially aggressive manner since the pandemic struck. It has reduced its policy interest rate to negative levels in real terms. It has bought government securities to push down long-term interest rates. It has allowed large capital inflows, then intervened in the foreign exchange market to prevent the appreciation of the rupee. These actions are incompatible, and will eventually generate a serious policy dilemma.

Budget estimates of tax revenue for 2020-21 of Rs 16.3 lakh crore were already an ambitious target over the previous year’s revised estimates of Rs 15 lakh crore. It was based on a nominal GDP growth projection of 10% made before Covid-19 hit India.

One of the corners of the trilemma has to do with capital inflows. In the first few months of the pandemic and the associated lockdown, the Indian economy witnessed a net outflow of foreign portfolio investment (FPI). However, this trend has reversed in recent months, as policymakers in the developed world have adopted stimulative measures to revive their economies, creating excess liquidity in global financial markets.

Between June and August, Indian capital markets received a net FPI inflow of close to $10 billion as foreign investors returned to the stock market. In September so far, for the first time in the last six months, inflows into the debt market have turned positive. India also received close to $17 billion of foreign direct investment (FDI) during April-July. Capital has also been flowing to India in the form of external commercial borrowing (ECB) by Indian corporations.

At the same time, the combination of weak economic growth, lacklustre domestic demand, and low oil prices have shifted the current account balance from deficit into surplus. Imports have fallen more than exports suggesting that India is doing worse than its trading partners. These factors have changed the balance of supply and demand in the foreign exchange markets as a result of which the currency has begun to face appreciation pressures against the dollar.

This brings us to another corner of the trilemma — currency stability. In the face of rising appreciation pressure, the RBI has been actively intervening in the foreign exchange markets to prevent the rupee from strengthening further. It has been buying dollars both in the spot and in the forward markets. In May and June, RBI’s net dollar purchase in the spot market was to the tune of $14.4 billion. In June, its net purchase in the forward market was more than $4 billion. As a result of the RBI’s currency trading, India’s foreign exchange reserves have increased by around $80 billion since January, to reach an all-time high of $540 billion.

When the RBI buys dollars in the FX market, it sells rupees. This increases the domestic money supply and is therefore inflationary. In order to counter this inflationary pressure that is being generated by RBI’s FX interventions, the central bank will ideally sterilise its interventions. This entails the RBI selling government bonds to banks and in the process absorbing excess rupee liquidity from the system.

But the RBI has not been absorbing the liquidity created through dollar purchases, it has been adding to it by buying government securities through its open market operations and targeted liquidity injection programs such as the T-LTRO. In the last couple of months, some of these operations have been neutral, such as the Operation Twist programme wherein the RBI buys long-term government securities and sells short-term bonds in order to lower the yields on the longer end of the maturity spectrum. But in total, the net bond purchase by the RBI has been positive. This implies that instead of sterilising its FX operations, the RBI is adding further liquidity into the system through its bond market interventions. As a result, liquidity has soared, reaching as much as Rs 8 trillion at one point.

For the moment, this injection of liquidity may not get readily converted into broad money because the growth of credit to the private sector has been weak, depressing the money multiplier. But if the RBI continues to ignore the Impossible trilemma, it will eventually fail. There are two main ways this could happen: It might need to give up on its exchange rate objective, as the recently released report hints. Or it might need to give up on its inflation objective.

Both would be problematic. Exchange rate appreciation will further damage the already hard-hit export sector. But allowing high inflation is even more of a problem in a country where the RBI has committed to the public not to allow a repeat of what happened after the last global financial crisis, when inflation soared to double digits.

Already, the constraints of the trilemma have tightened. Retail inflation has now breached the upper limit of 6 per cent for more than three quarters. Core inflation has been rising and inflation expectations have jumped sharply. And while credit to the private sector remains depressed, credit to the government has been strong, implying that overall broad money is growing rapidly. The time for difficult decisions seems to be approaching.

India’s fiscal crisis can only get worse as tax revenue is seen dropping 12.5% in 2020-21

The Print, September 4, 2020 (with Ila Patnaik)

Data released earlier this week shows a contraction in Goods and Services Tax collections in August. The decline in tax revenue was to be expected. Since Covid-19 hit India, economic activity has been lower due to the lockdown. Lower economic activity means lower production and thus lower taxes. Based on expectations of lower activity, we expect tax revenues to decline by about 12.5 percent for the year as a whole.

The data on GST released earlier this week showed that the gross GST revenue collected in the month of August, 2020 was Rs 86,449 crore, 12% lower than the collection of August 2019.

Budget estimates of tax revenue for 2020-21 of Rs 16.3 lakh crore were already an ambitious target over the previous year’s revised estimates of Rs 15 lakh crore. It was based on a nominal GDP growth projection of 10% made before Covid-19 hit India.

With the outbreak of the pandemic and the subsequent nationwide lockdown, nominal GDP growth and tax collections are expected to be lower. In a recent paper, we estimate the tax revenue for 2020-21 based on the lower expected growth.

Due to the pandemic, the economy is facing the twin shocks of widespread supply-side disruptions and large-scale reductions in aggregate demand. Although there has been a gradual relaxation in the lockdown from June 2020 onwards, the economy has been coming back to life only slowly (LINK limping back to normalcy ) since then. While rural areas opened up relatively quickly, urban India continues to see lower economic activity. Consequently, in the April-June quarter of 2020, India’s GDP contracted by 23.9%.

Nominal GDP growth will be zero

The central government earns revenues from five main types of taxes. The sum total of revenues obtained from these taxes is referred to as the Gross Tax Revenue (GTR). These include direct taxes such as tax from corporate profit and income tax (accounting for roughly 28% and 26% of GTR, respectively), indirect taxes such as GST, customs duties from non-oil imports and Union excise duties from oil imports (accounting for roughly 28%, 6% and 12% of GTR, respectively).

We project the GTR for 2020-21 using a bottom-up approach. We start with the individual components of GTR (i.e. Corporate tax, Income tax, GST, Customs duties, and Excise duties) and calculate the long term averages of the ratios of these components to the relevant aggregates such as nominal GDP, corporate profit, imports etc. Then, we multiply these long-term average ratios, with the projected values of the relevant aggregates for 2020-21.

Although it is difficult to come to a precise forecast of GDP due to the continuing uncertainty about the pandemic, a real GDP growth rate of -5 per cent for 2020-21 is what a number of economists and analysts expect. Consumer price index (CPI) inflation can be expected to be 5 per cent, given the recent surge in inflation. This gives us an expected nominal GDP growth rate of zero.

Tax collections won’t be same as last year

In other words, we anticipate that nominal GDP in 2020-21 will remain the same as in 2019-20. We expect that tax collections this year will be lower than last year because of the pandemic. Thus, instead of assuming that at the same nominal GDP levels, we get the same income tax and GST revenue as last year, we expect that these tax collections will be in line with the long-term average ratio.

Applying the average income tax-to-GDP ratio of the last nine years (since 2011-12 when the new GDP data became available) to the projected nominal GDP, we get a 7 per cent decline in income tax revenue for 2020-21. Similarly we get a decline in GST of 4.1 per cent.

We expect that corporate profit will fall by 20 per cent in 2020-21 compared to last year. Profits of the NIFTY50 companies listed on the National Stock Exchange fell by 15 per cent in the January-March quarter. The situation is likely to worsen significantly in the April-June quarter owing to the lockdown. Even if sales and profits improve later in the year, overall, we expect a 15 per cent decline in corporate profits for this year. This gives us a projected decline in corporate tax by 17.6 per cent.

In March, non-oil imports fell 21 per cent and in April, by 41 per cent. Accordingly, in our baseline scenario, we expect non-oil imports, and hence Custom duties, to fall by 20 per cent for the year as a whole. Finally, the value of oil imports may be expected to fall by 30 per cent owing to the reduction in oil prices. This gives us a decline in excise tax revenue by 22.2 per cent.

Our projections for the growth rates of the various components of GTR for 2020-21 are summarised in the table below. We predict that GTR will contract by around 12.5 per cent.

Financing the budgeted expenditure of Rs 30 lakh crore estimated in the Union Budget 2020-21, as well as the Covid-19 fiscal package, was already a challenge. With the additional challenges that lower tax collections pose, this is going to be an even bigger challenge.

The impact of the pandemic and the associated lock down is highly uneven. While some sectors (e.g. hospitality, aviation, automobiles) have been severely impacted, the shock to some other sectors (e.g. pharmaceuticals and fast moving consumer goods) has been modest. Some sectors (e.g. telecom, internet based services) have benefitted from this episode. Even within a sector, businesses have experienced varying degrees of stress depending on their size, financial constraints, geography of their operations, etc. Restructuring must be permitted only for those firms that have been badly hit by the pandemic and not to those who were financially stressed before the outbreak of Covid-19.

Analysing monetary policy statements of the Reserve Bank of India

Analysing monetary policy statements of the Reserve Bank of India , (with Aakriti Mathur), VoxEU, September 3, 2020.

Four principles to be followed in RBI’s loan restructuring

MoneyControl, August 21, 2020 (with Harsh Vardhan)

In the aftermath of the 2008 Global Financial Crisis, large-scale debt restructuring had taken place in the Indian banking sector. Just about a decade later the Reserve Bank of India finds itself in a similar situation with demands from multiple stakeholders for a recast of the bad loans that would soon pile up on the balance sheets of banks. This time around the context is the ongoing Covid-19 pandemic, and the unprecedented challenges imposed by the resulting economic crisis on India’s businesses. The previous experience had given ‘restructuring’ a bad name. Can this time be made different?

In the post 2008 period, a series of restructuring schemes offered by the RBI to the banking sector had facilitated an ‘extend and pretend’ approach. The underlying asset kept deteriorating for years. When the RBI initiated an asset quality review in 2015, the non-performing assets skyrocketed. This episode triggered a prolonged phase of low growth-low investment in the economy.

As the RBI embarks upon a similar project, lessons from this experience should guide the current thinking. RBI has already issued first-order guidelines that set out key boundary conditions for the restructuring scheme. A next level of filters is now required to prevent a repeat of the past mistakes. To this end, we outline four principles that we think should be embodied in any restructuring scheme that the RBI offers.

Avoid Type 1 and Type 2 errors

The impact of the pandemic and the associated lock down is highly uneven. While some sectors (e.g. hospitality, aviation, automobiles) have been severely impacted, the shock to some other sectors (e.g. pharmaceuticals and fast moving consumer goods) has been modest. Some sectors (e.g. telecom, internet based services) have benefitted from this episode. Even within a sector, businesses have experienced varying degrees of stress depending on their size, financial constraints, geography of their operations, etc. Restructuring must be permitted only for those firms that have been badly hit by the pandemic and not to those who were financially stressed before the outbreak of Covid-19.

In deciding which borrowers get the restructuring, we must avoid what statisticians refer to as Type 1 and Type 2 errors. Type 1 error occurs if a deserving borrower is denied restructuring. Significantly more pernicious from the perspective of the banks and hence the economy, is a Type 2 error where non-deserving borrowers get restructured. Widespread Type 2 errors can ultimately impose a heavy cost on the rest of the economy especially when 70% of the banking system is owned by the Government.

The bankers themselves are best placed to judge if a borrower deserves to be restructured. Hence, one way to avoid these identification errors would be to let the bankers exercise their discretion and judgement as opposed to the banking regulator prescribing the rules.

Ensure accountability of bankers

Restructuring schemes offered by the regulator are by definition accompanied by forbearance and create a risk of moral hazard. In absence of the necessary checks and balances, bankers may get tempted to recast the debt of all their borrowers because they get to keep their books clean. This is especially relevant in cases where a bank’s CEO is about to retire soon. Hence it is important that bankers have a skin in the game and are held accountable for the decisions they take.

This can be achieved in two ways. First, the provisioning requirements on restructured loans must be higher than standard assets and lower than NPAs. There must be an incremental cost of restructuring. Second, adequate disclosures must allow a wide range of external stakeholders to assess the actions of bank management.

Minimise information asymmetry through enhanced disclosures

When a bank implements a restructuring scheme, the information asymmetry goes up. The regulator must take necessary steps to reduce the opacity of the deal struck between the bank and the borrower. This is important because banks deal with public money and with majority of the sector owned by the Government, any lapse on the part of these banks ends up imposing a cost on the tax payer.

The most important way to reduce information assymetry and enhance accountability of bankers is to demand disclosures. Previous restructuring schemes were characterised by scant disclosures and hence the various stakeholders in banks – stockholders, bond investors, other borrowers, depositors, employees, etc had little information.

Any scheme must be accompanied by extensive disclosures on various aspects of the restructuring such as amount of loans restructured, the sectoral break up of restructuring, the stage in the lifecycle of the loan when restructuring is done, assessment of the bank management on the recoverability of the loan, the timeline of recoverability, key conditions of restructuring, and so on. These disclosures should be mandated on a quarterly basis with regular updates on the performance of the restructured portfolio.

Impose conditionalities on borrowers

The borrower who qualifies for a loan recast must pay some price in lieu of the relief obtained, as otherwise there maybe little incentive to abide by the terms of the scheme. The underlying assumption of the relief is that the cash flows of the borrower are impacted by the pandemic and are inadequate to service debt. In that case, the borrower must not be permitted any other discretionary uses of cash flows. Specifically, borrowers must not be allowed to engage in acquisitions, share buybacks and delisting, dividend payment, and even variable compensation to senior management, as long as any of their loans is getting restructured. These restrictions should be the pre-conditions for restructuring.

As we enter into yet another phase of debt restructuring, it is important to note that restoring the health and stability of the banking sector is critical for the recovery of the economy from this crisis. While restructuring provides short-term relief, it does not solve the underlying problem. Most often the hope is that the system will grow out of the crisis and the problem will go away. In the last round of restructuring this hope had backfired. It is vital that we avoid a repeat of that episode this time around.

Modi government and RBI can learn from mistakes made during 2008 crisis, but time’s running out,

The Print, August 19, 2020

Five months into the lockdown, the Covid-19 pandemic is nowhere near its end, while the economy continues to steadily deteriorate. The pandemic is unprecedented in modern India, but its economic impact is familiar: a toxic mix of poor growth, high inflation, and numerous bad loans, similar to the period after the 2008 Global Financial Crisis. This means we can look to the 2008 crisis for lessons that can help us avoid policy mistakes, especially with respect to inflation and bad loans.

Inflation pressure

Let’s first consider inflation. In the aftermath of the Global Financial Crisis (GFC), the Reserve Bank of India (RBI) responded aggressively, lowering the policy rate by more than 4 percentage points in just four months, to 4.75 per cent in December 2009. At the time, the RBI felt it was safe to relax its monetary policy stance, since the wholesale price index (WPI) inflation had collapsed. But the respite in inflation proved temporary, and soon the WPI was rising at a double-digit pace, causing inflation expectations to soar. Bringing this situation under control proved to be difficult. It was not until 2013, when policy rates had been increased to painful levels, that inflation finally began to subside.

In retrospect, the RBI made two mistakes. First, it focused on the WPI, even as more comprehensive indices were signalling towards growing inflationary pressures. The erstwhile CPI (Consumer Price Index)-industrial workers series exceeded 12 per cent, as early as 2009-10. Second, and more critical, even after the WPI itself began to rise the RBI was slow to respond, since it always had reasons to hope that the increases would be temporary.

When the current Narendra Modi-led government came to power in 2014, it seemed determined to not let such a harrowing episode be repeated. Accordingly, it introduced into law a new monetary policy regime, committing the RBI to keeping inflation within a 4-6 percent range, as measured by the CPI — not the WPI. If inflation did exceed 6 per cent for three consecutive quarters, the RBI was required to explain in a report to the government, in a report, what it was doing to bring inflation back to target levels.

The RBI now finds itself in precisely the situation that the law meant to safeguard against? CPI inflation has exceeded 6 per cent for the past 10 months. But the reaction of the RBI has been the same as it was after the GFC. The central bank has been reluctant to increase interest rates, on the grounds that high inflation triggered by supply side constraints is temporary. Without doubt, prices have been pushed up by supply disruptions during the lockdown period, and these will eventually disappear. But the process of restoring supply chains might easily take a year, by which time high inflation expectations could become firmly entrenched. Hence, there is a risk that despite all the efforts to ensure post-GFC mistakes never happen again, they are about to be repeated.

Covid's bad loan crisis

So much for inflation. What about bad loans? After the GFC, slower growth and higher interest rates rendered unviable many of the investment projects initiated during the 2004-08 boom. , making This made it impossible for many firms to repay their bank loans. The RBI responded with a series of restructuring schemes, which failed to resolve the problem. Instead, the schemes facilitated an ‘extend and pretend’ policy which enabled the banking sector to hide the bad loans for years.

The delay in resolution of the stressed assets triggered a prolonged phase of low investment-low growth in the economy, and high risk aversion in the banking sector, from which the economy still hadn’t recovered when it was hit by the Covid-19 pandemic. As these consequences became apparent, the Modi government brought in the Insolvency and Bankruptcy Code (IBC), mandating that bankrupt firms be resolved expeditiously, and in a transparent manner, essentially by auctioning them off to new, financially stronger, owners.

For a time, the IBC was indeed able to whittle down the stock of bad loans. But the Covid-19 shock generated a new wave of stressed assets, which according to the RBI’s latest Financial Stability Reports is likely to propel nonperforming assets (NPAs) to a new peak of 12.5 per cent by March 2021, even under a favourable scenario.

Going forward

It is unclear how the authorities plan to deal with this problem. So far, the government has suspended the initiation of fresh insolvency proceedings for a year, while the RBI has appointed a committee to recommend new restructuring guidelines.

If the new restructuring guidelines follow the same ‘extend and pretend’ strategy chosen after the GFC, the outcome will be the same as before. Or possibly worse, given that in 2008 the corporate and banking sectors were comparatively stronger, whereas even before the virus hit in 2020, they both had been substantially weakened by years of balance-sheet stress. Hence, the effects of delaying resolution this time might be more serious. If the banking sector gets paralysed, unlike the post-2008 period, borrowers will no longer be able to turn to the non-banking finance companies (NBFCs), since the NBFCs are also in a weak condition now.

India, thus, stands at a crossroads now. Soon, the Modi government and the RBI will need to decide whether to deal quickly and decisively with the economic problems that Covid-19 has created, or wait and watch in the hope that they will disappear over time. The stakes in this decision are high, since it will determine the course of India’s economy for the next decade.

Looking back, the GFC episode makes it clear that the decisive strategy is superior. What is unclear is whether this lesson has truly been learned. And we all recall American philosopher George Santayana’s admonition: if we do not learn from history, we are doomed to repeat it.

The Indian corporate bond market: From the IL&FS default to the pandemic

The Indian corporate bond market: From the IL&FS default to the pandemic, (with Harsh Vardhan), The Leap Blog, August 7, 2020.

Covid-19 and Corporate India

Covid-19 and Corporate India , The Leap Blog, July 1, 2020.

The pandemic and the package

The pandemic and the package, Ideas for India, June 4, 2020.

RBI vs. Covid-19: Understanding the announcements of March 27

RBI vs. Covid-19: Understanding the announcements of March 27, Ideas for India, April 7, 2020.

Policymaking at a time of high risk-aversion

Policymaking at a time of high risk-aversion, Ideas for India, April 6, 2020.

Covid-19: Policy Challenges And Traps In Restarting The Economy

Bloomberg Quint, April 6, 2020 (with Harsh Vardhan)

It is now widely acknowledged that the scale of the economic damage caused by the Covid-19 pandemic will be far greater than that caused by the 2008 global financial crisis, globally as well as for India.

There exists considerable uncertainty about the duration and depth of the crisis but one thing is becoming increasingly clear: dealing with the after-effects of Covid-19 will be a major economic policy challenge over the next few years. While some policy actions have been announced by the government and the Reserve Bank of India, they are interim measures and are not going to be adequate to support the economy. Given the uncertainty, policy responses are likely to be reactive. Here, we discuss a few challenges in fiscal, monetary and financial policies and also lay out some policy traps that must be avoided in order to prevent a long-term economic disaster.

Fiscal Conundrum

Let’s start with fiscal policy. Even assuming a conservative scenario where the government does not incur any additional expenses due to Covid-19, the deficit will be greater than the projected value in the 2020-21 budget. During the ongoing three-week-long lockdown, almost all economic activities have been suspended and most of these are unlikely to resume in the near future given the nature of the health shock. As a result, government revenues will fall drastically. Given the depressed equity market condition and global economic uncertainty, the disinvestment targets are unlikely to be met. Over and above this, much of the policy actions required to minimise the economic fallout of the shock will involve government spending.

It is almost certain that the government will not be able to adhere to its fiscal target for 2020-21 and will most likely breach it by a big margin.

In India, the fiscal deficit is supported by financial repression wherein the government borrows from a captive market of banks and other institutional lenders. In the pre-Covid19 period, total central and state government borrowing had already exceeded total household savings. Further borrowing will sharpen the yields in the bond market and crowd out private capital at a time when a large number of firms and households will need to borrow to stay afloat. The large-scale income losses of many businesses and households that are inevitable during this crisis imply that the savings rate is likely to fall. These factors leave little room for the government to increase its domestic borrowing.

Recently, a scheme has been announced to encourage foreign investment in government securities. With the global spread of the pandemic, foreign portfolio investors have already been taking money out of the Indian capital markets. Given the widespread risk aversion, it is unlikely that this route will bring in a lot of financing for the government. If anything, the widening fiscal deficit may lead to a sovereign rating downgrade or a lowering of the macro outlook which in turn will increase the risk premium demanded by FIIs. Therefore, the biggest policy challenge now will be financing the rise in the government deficit. The only favourable factor in this regard is the sharp decline in global oil prices which are expected to remain subdued given the worldwide decline in demand for oil.

The Risks To Print-And-Spend

Next comes monetary policy. There are now calls from certain quarters for the RBI to print money to finance the rise in the fiscal deficit, a practice that was prevalent in India but discontinued since 1997. Monetisation of fiscal deficit will create inflationary pressures, lead to greater uncertainty about future inflation, increase long-term interest rates and adversely impact growth, thereby defeating the very objective of supporting the economy.

All efforts to flatten the Corona curve would steepen the yield curve.

This move will violate India's inflation-targeting framework and attenuate the effectiveness of future monetary policy actions. It will also hurt the credibility of the government.

Financial Freeze?

Finally, in the financial sector, banks and non-banking finance companies will witness a precipitous rise in non-performing assets, both from the private corporate and the retail sectors as firms and households struggle to deal with this unprecedented shock. A large number of firms especially the micro, small and medium businesses and also self-employed individuals are likely to default on their bank and NBFC loans.

Rising NPAs will erode the capital of lenders at a time when they are expected to lend aggressively to revive economic growth.

With the stock market touching new lows every day, it will be difficult for private banks to raise capital and the strained fiscal situation will make it difficult for the government to recapitalise the public sector banks. Capital deficiency in the face of rising NPAs will lead to demands for ‘forbearance’ from the RBI. There may also be further easing of capital requirements by tweaking the risk weights or outright reduction of capital adequacy requirements, on the basis that Indian requirement has been tighter than international standards. The net result of such regulatory concessions would be that the banking sector will remain undercapitalised for some time and will hide its losses.

Rules Matter

When the Covid-19 shock hit India, the economy was still recovering from the twin balance sheet crisis, the seeds of which were sown in the years of regulatory forbearance of the post-2008 period. Postponement of NPA recognition helps to 'extend and pretend'. Soon the problem becomes too big to tackle and the damage to the economy becomes long-lasting. If allowed now, this will lead to a system-wide crisis as it did in 2016-17 post the asset quality review by RBI.

Defaults by firms would trigger a wave of bankruptcies.

The Insolvency and Bankruptcy Code has introduced, for the first time, a rigorous and disciplined process for dealing with bankruptcies. There will be a demand now to dilute the provisions of IBC. This could undermine the most important reform of the last decade and render the code ineffective.

In such extraordinary times, the temptation to ignore rules and frameworks, and apply discretion runs high. This approach is neither effective nor sustainable. Over the last two decades several important policy frameworks have been put in place – FRBM, inflation-targeting, Basel norms, IBC, etc. These frameworks provide institutional support to policy decisions and must be adhered to in the interest of the long-term health of the economy. Policy responses to the ongoing crisis potentially risk undermining these frameworks and must be decided with utmost care and caution.

Covid-19: Macroeconomic implications for India

Covid-19: Macroeconomic implications for India, Ideas for India, March 24, 2020.