BUSINESS
OPINION | Nobel Economics 2025: Smith and Schumpeter Award
For the fourth successive year, the Nobel Committee has awarded the prize to economists who have delved into history to answer some of the big questions of our time. It’s the turn of path-breaking research into innovation and technological progress this year
WORLD
Trump may want to push out Powell, but markets value an ‘independent’ Fed
US Federal Reserve’s operational independence is not a gift from the political executive and legislature. It’s the outcome of prior bouts of inflation, with the system adapting to reach the most effective way to combat it. Undermining it will have long-term consequences in financial markets
BUSINESS
Getting to the core of GDP
In a volatile global economic environment, headline GDP can be overly influenced by exogenous shocks like the ‘Trump tariff'. A way to segregate the influence of temporary shocks and gauge the long-term trend is to calculate the core that makes up GDP, private consumption and fixed investment. In India’s case, over the last two decades, core GDP’s growth has outpaced the overall economic growth
BUSINESS
SEBI needs to re-visit its ban on derivatives in commodities
Last month, the regulator extended the ban on trading in seven commodities by another year. It’s high time to end this ban. Government appointed committees have shown that a causal link between futures markets and inflation is not supported by data. This misplaced fear hurts farmers
WORLD
Rarefied world of central bank chiefs who became PMs
Mark Carney, Canada’s new PM, is the seventh central bank governor to get his country’s top political job. India’s Manmohan Singh got there earlier and is only one of two people to head the central bank, finance ministry and eventually the government. Usually, it’s a political or economic crisis which makes a former central bank boss the go-to person. The flow is not always in one direction. Many have been finance ministers before landing up with the top job at the central bank
BUSINESS
Scions of India's old family businesses are just picking up the threads; financing is in their business genes
Today’s heirs may prefer looking for attractive investment opportunities through family offices. By doing so, they are taking a leaf out the playbook of their forebears, who also financed other businesses. The more important thing is these older family businesses manage their family offices well and not get wiped out as not everyone is a chip off the old block.
BUSINESS
Trump’s dollar dilemma
US dollar is the principal international reserve currency. A significant proportion of the US trade deficit flows back into the country as central banks invest their USD holdings in American debt. That’s the basis of the dollar hegemony. What happens when this circular flow is undermined?
BUSINESS
Sayonara central bank independence?
An idea that took root globally after inflation shocks of 1970s is facing its stiffest challenge yet. Post-2008 crisis, central banks moved away from a narrow remit of targeting just inflation. Now, in a phase where multiple crises have catalysed political movements with extreme views on institutions, the very idea of central bank autonomy is facing a stiff challenge
BUSINESS
Economists, don’t ignore social trends. They can upend your forecasts
Factors such as trust in society impact economic performance. In this context, recent global developments have been disquieting with even the US, the world’s largest economy, experiencing a rise in recorded instances of hate crime offenses. Economists need to pay attention to social trends as they provide the setting in which markets operate
BUSINESS
Shaktikanta Das: A left-field Governor’s rollercoaster tenure
Both his entry and exit as RBI Governor were unexpected. He managed RBI leadership rather well against all odds, supported ably by the RBI staff. His tenure would be remembered for the way RBI handled the pandemic, with his sense of calm providing comfort to both the central bank and financial markets
BUSINESS
Target headline or core inflation? Depends on where you sit
A familiar debate is playing out between representatives of fiscal authority in Delhi and monetary authority in Mumbai on whether the policy interest rate is too high. Linked to it is the question of whether the legal mandate RBI has to follow has picked the right measure. An economist provides food for thought on inflation measures.
BUSINESS
Supply side shocks upend macro policymaking
All these years, the world economy mainly dealt with demand side shocks where central banks were simply expected to tweak interest rates to bring inflation back to control. Supply shocks have now made a comeback, complicating the job of central banks in identifying the causes of inflation
BUSINESS
Economics Nobel 2024 opens the Pandora’s Box of the role of colonialism in economic history
If high quality institutions are the driver for long-term prosperity, why did different colonies, ruled over by the same coloniser, display different economic trajectories later? The role of colonialism and its varying nature, found the Nobel winners, has an influence that is not easy to shake off and therefore leaves a lasting imprint
BUSINESS
Durability of the Hayekian worldview shows some ideas never stop having consequences
Fifty years ago, Friedrich Hayek was a controversial awardee of the economics Nobel prize. Was he primarily an economist or a political philosopher? It’s a discussion that continues to this day, but there’s no doubt that no other economics Nobel winner has had such a pervasive influence on consequential politicians in the West
BUSINESS
RBI suggests lowering MIBOR concentration in interest rate derivatives
The RBI's 2024 Committee on MIBOR highlights concentration risks in India's IRD market, recommending a shift towards a Secured Overnight Repo Rate (SORR) based on actual transactions, and wider participation in the IRD market. These reforms aim to enhance liquidity and market diversity
BUSINESS
A new currency tries to defy conventional wisdom
The world’s newest currency, Caribbean Guilder, is the outcome of a currency union between two countries with different economic structures and a sharp disparity in income. The underlying economic conditions are far removed from the ideal scenario for such a union. The journey of the Caribbean Guilder will be followed with interest
BUSINESS
Prime Minister’s Jan Dhan Yojana: The long arc of financial inclusion in India
Beginning 1904, there have policy-led attempts at financial inclusion. Banks were the last institutions to join the drive towards inclusion but today are at the forefront. PMJDY represents a culmination of all these years of ideas and policies coming together
BUSINESS
Deposits are the focal point but it's intra-bank borrowings that need scrutiny
Credit growth outpaced deposits in 17 of the last 33 years. Lagging deposit growth therefore should not be a reason for concern. It’s greater reliance by banks on borrowings to fund incremental credit that’s causing anxiety
BUSINESS
Policymakers and retail investors: Damned if you do, damned if you don’t
They are trying to limit the stock market frenzy by throwing sands in the wheels of stock market participation. Retail investors should listen and act on the growing concerns over high valuations and excesses of stock markets
BUSINESS
MPC Meet: RBI keeps repo rate unchanged amidst positive growth outlook
RBI's Monetary Policy Committee decided to keep the policy repo rate steady at 6.5 percent in its June meeting. Despite concerns over volatile food inflation, economic activity showed resilience and GDP projection was revised upwards to 7.2 percent
BUSINESS
MPC Meet: RBI maintains status quo, keeps repo rate at 6.5%, in line with market expectations
The policy review committee decided to keep repo rate unchanged for the seventh time in a row and said that it remains vigilant towards upside risks to food inflation. It has projected CPI inflation at 4.5 percent and GDP at 7 percent for FY25
BUSINESS
The Macro Puzzle – II: Divergence between Consumption and GDP
The recently released GDP data has led to lots of questions and puzzles as the data is at odds with the historical trend of consumption growth broadly mimicking GDP growth. The difference of 4.5 percentage points between GDP growth and consumption growth in 2023-24 is the highest since 1951-52, as against a maximum difference of 0.5 to 1 percentage points in earlier years
BUSINESS
The Macro Puzzle: What explains the big divergence between GDP and GVA
Most likely the government might have not spent heavily on subsidies while tax flows, especially GST, has been highly robust. Interestingly, the second highest difference between GDP and GVA is in 2018-19, which coincides with the period during the previous Lok Sabha election. However, one has to be careful before jumping to any conclusions as the GDP data is revised significantly in multiple stages
BUSINESS
New Household Consumption Survey: High time we released new CPI data
Monthly Per Capita Expenditure has increased, which is expected given growth in the Indian economy and incomes. The continuing decline in share of food expenditure – declining to 46 percent in rural areas and to 39 percent in urban areas – has wider implications for India’s macroeconomics and monetary policy. The survey data will eventually feed into the design of the new base year for CPI – pending for a while now. The decline in share of food and rise in share of non-food ensures headline inflation will be less volatile and core inflation will have higher weight
