Is Kerala really credit-deficient?

by Abhilash S.

Kerala carries a familiar label: "deposit-surplus, credit-deficient." Deposits in its banks exceed what those banks lend, and its credit-deposit (CD) ratio runs below the national figure. The charge has been repeated in the state legislature and at State Level Bankers' Committee meetings for years: Kerala's savings, the argument goes, are shipped out and invested in other states, while the state's own firms, farmers and households are left short of credit.

The claim is not wrong on its face. But it is a claim about mechanism as much as magnitude, and the mechanism has been asserted far more often than tested. This article brings seven State Level Bankers' Committee (SLBC) returns for Kerala - six annual, end-March observations for 2021-2026 plus the quarter ending June 2026 - to bear on the question. Three findings emerge that jointly revise the conventional account.

First, Kerala's CD ratio rose from 65.5 to 72.9 per cent over the period, but the all-India ratio rose faster, from 71.7 to 80.1 per cent. The gap widened from 6.2 to 8.0 percentage points. The apparent convergence visible in Kerala's own series is an artefact of reading it without a comparator.

Second, credit measured against Kerala's resident deposit base alone has exceeded 100 per cent since March 2024, reaching 104.3 per cent in June 2026. Close to half of the rise in the headline ratio - 46.6 per cent - reflects the falling non-resident share of the denominator rather than any additional lending.

Third, the CD ratio is markedly lower among private-sector banks, which collect most non-resident deposits. That gap widened from 10.0 to 17.8 percentage points over the panel.

The conclusion has direct bearing on policy. CD-ratio floors computed against undifferentiated deposits - as the Reserve Bank of India's February 2026 draft Lead Bank Scheme guidelines propose - will systematically mismeasure high-remittance regions.

What the CD ratio can and cannot show

Before reviewing the evidence, it is worth being precise about what the CD ratio measures. The ratio compares advances outstanding with deposits outstanding. The RBI originally designed it as a branch-level supervisory check: a quick way to gauge whether a bank was putting locally gathered money to local use. It has three well-documented limitations.

First, it is a stock ratio computed from balance-sheet outstandings, not a flow measure of credit disbursed. A state can show a rising CD ratio purely because deposit growth has slowed, without any acceleration in real credit extension.

Second, it takes no account of investment. A bank holding a large statutory liquidity ratio portfolio against a state's deposits will show a low CD ratio while still deploying deposits productively. This is why the RBI and SLBC returns also compute a "C+I:D" ratio (credit plus investment to deposits), used alongside the narrower CD ratio throughout this article.

Third, the ratio says nothing about where credit sanctioned to a resident is actually booked. A large corporate borrower headquartered in Kerala but drawing credit through a treasury branch elsewhere will show up as credit extended outside Kerala, deflating the state's ratio. Kerala wants Britannia to operate more in the state; Britannia's corporate finance happens in Bombay.

There is a fourth objection, almost entirely absent from the Indian policy discussion. The implicit standard against which a state's CD ratio is judged deficient - the presumption that deposits mobilised in a region ought to be lent within that region - is contradicted by the basic purpose of a financial system. A financial system should move resources around the country. If India were cut into a hundred homogeneous regions and each imposed capital controls upon the others, every region would show a tidy savings-investment balance. It would also be a highly inefficient outcome, much as India's own capital controls hinder risk-sharing on a global scale. Large variation in CD ratios across Indian states is not a market failure to be corrected. It is what an integrated financial system looks like in a country of India's size, income variation, and heterogeneous investment opportunities. The evidence supports this. Bayoumi and Rose (1993), studying regions within the United Kingdom, found that regional saving and regional investment were essentially uncorrelated - capital moves to where its return is highest, and a region's savings bear no systematic relationship to the investment financed within its borders. Kerala shares the rupee, the RBI's regulatory perimeter, and a nationally branched banking system with the rest of India. On this logic, a Kerala CD ratio below 100 per cent is not an anomaly requiring explanation. It is the expected outcome of a functioning integrated capital market in which a high-saving region is a net exporter of loanable funds.

This does not dispose of the question. It reframes it. The interesting question is not why Kerala's CD ratio sits below 100 per cent, but whether the ratio is low relative to the appropriate national benchmark, and whether the gap, once the distinctive composition of Kerala's deposit base is accounted for, reflects anything about credit supply to Kerala's residents at all.

The data

The primary source is seven SLBC Kerala agenda-note statistical annexures, obtained as originally circulated. Each annexure is a multi-sheet spreadsheet - ranging from 43 to 73 tables depending on the year - covering branch and deposit statistics by bank, non-resident (NR) deposits, advances, CASA, CD ratio, investment, priority-sector advances by sub-sector, and district-wise Annual Credit Plan target-versus-achievement figures.

Two features of the source data required explicit handling. Table numbering is not stable across years - the same substantive table appears as table 8.1 in March 2021, table 10.1 in March 2022, table 11.1 from 2023 onward. Tables were matched by title text rather than position, and every match was manually verified. Row layout within a given table type is not fully stable either. In every case, the row explicitly labelled as the all-bank-group state total was extracted, and the resulting advances figure was cross-validated two independent ways - once as implied by the reported CD ratio applied to reported deposits, and once as directly reported in the NR-deposits-and-advances table. All seven years reconcile between these two independent figures to within rounding.

All monetary figures are converted to Rs crore throughout. One lakh is 100,000 and one crore is 10 million, so Kerala's March 2026 deposit base of Rs 10,62,695 crore is approximately Rs 10.6 trillion. No US dollar equivalents are given, because the rupee-dollar rate moved materially across the period.

The aggregate panel, 2021-2026

Kerala's banks held Rs 6,77,127 crore in deposits at the end of March 2021. Five years later, in March 2026, the figure stood at Rs 10,62,695 crore; by June 2026 it had crossed Rs 10,84,241 crore. That is a 57 per cent cumulative rise, or about 9.4 per cent a year. Advances grew faster: from Rs 4,43,554 crore to Rs 7,74,507 crore over the same five years, a 75 per cent increase, or roughly 11.8 per cent annually. When lending outruns deposit-gathering by about two and a half percentage points a year, the CD ratio climbs - and it did, from 65.5 per cent in March 2021 to 72.9 per cent in March 2026.

As at	Deposits (Rs crore)	Advances (Rs crore)	CD Ratio %	NR Deposit %	C+I:D Ratio %
Mar-2021	6,77,127	4,43,554	65.51	33.91	74.08
Mar-2023	7,94,076	5,47,988	69.01	30.35	73.05
Mar-2025	9,48,249	6,83,513	72.08	30.96	78.57
Jun-2026	10,84,241	7,81,043	72.04	30.94	75.69

Source: Author's calculations from SLBC Kerala agenda statistical annexures.

On its face, this is a different picture from the one the "deposit-surplus, credit-deficient" framing conjures. If the framing is read as a claim about levels - that Kerala's CD ratio sits well below what would be considered adequate - it still holds for the earlier years but becomes marginal for the later ones, since Kerala's ratio has been at or above 72 per cent, comfortably within the conventional adequacy range and well above the RBI's proposed 60 per cent floor, in every return from March 2024 onward.

But this reading is wrong, and wrong for a reason that has gone unnoticed in the Kerala debate: the national CD ratio rose faster.

Kerala against the national benchmark

For scheduled commercial banks across India, the CD ratio moved from 71.7 per cent at end-March 2021 to 72.1, 75.8, 79.5, and finally 80.1 per cent at end-March 2025. Kerala's own ratio over those same dates: 65.5, 64.6, 69.0, 73.2, and 72.1 per cent. Subtract one series from the other and the shortfall - the measure that actually captures Kerala's standing, yet one the state's debate has never produced - comes to 6.2 points in March 2021, 7.5 in March 2022, 6.8 in March 2023, 6.3 in March 2024, and 8.0 points by March 2025.

As at	Kerala	All-India	Gap (pp)
Mar-2021	65.51	71.70	-6.19
Mar-2022	64.59	72.10	-7.51
Mar-2023	69.01	75.80	-6.79
Mar-2024	73.21	79.50	-6.29
Mar-2025	72.08	80.10	-8.02
Change (pp)	+6.57	+8.40	-1.83

Source: Kerala from author's calculations on SLBC Kerala returns; all-India from Government of India, Economic Survey 2025-26, Statistical Appendix, Table 3.3.

It has not narrowed. On the most recent observation for which a national comparator exists, it is the widest it has been in the panel. Kerala did not converge on the national benchmark during the post-pandemic credit expansion. It fell further behind it, while appearing - to anyone reading only Kerala's own numbers, as the state's political and journalistic discourse has largely done - to be catching up.

Two qualifications are owed. First, the national figures cover scheduled commercial banks, while Kerala's grand total includes the cooperative sector, whose CD ratio is the highest of any bank group in the state; the like-for-like commercial-bank comparison widens the gap slightly at both ends. Second, the national aggregate is pulled upward by Maharashtra and the metropolitan concentration of corporate credit booked in Mumbai, so the "national benchmark" is a composite dominated by a few financial centres. What survives both qualifications is the central point: relative to the country it is part of, Kerala's banking sector deployed a smaller share of its deposits as credit at the end of this panel than at the beginning.

Credit against the resident deposit base

If the widening gap to the national benchmark establishes that Kerala's relative position has deteriorated, it does not establish why. The answer reverses the intuition a second time.

The CD ratio's denominator is the total deposit base, of which between 30 and 34 per cent throughout this panel consists of non-resident deposits. Those deposits are not, in any economically meaningful sense, savings generated by Kerala's resident economy. They represent savings built up by Keralites working in the Gulf, held in rupees at Kerala branches because the family lives there, the exchange-rate treatment is favourable, and the tax position is convenient. The income that produced them was earned wholly outside Kerala.

This suggests an obvious diagnostic: the ratio of Kerala's bank advances not to its total deposits but to its resident deposits alone. Writing the CD ratio as the product of a lending-intensity term and a deposit-composition term:

\[ \textrm{CD} = \frac{A}{D_r} \frac{D_r}{D} = \textrm{CD}_r (1-s) \]

where $A$ is total advances, $D$ total deposits, $D_r$ resident deposits, and $s$ the non-resident share of deposits. The first term measures how intensively the banking system lends against the deposit base Kerala's own residents generate. The second is a pure composition effect.

The result is striking. Kerala's credit-to-resident-deposit ratio was 99.1 per cent in March 2021, dipped to 95.2 per cent in March 2022, recovered to 99.1 per cent in March 2023, and then crossed and remained above parity: 106.9 per cent in March 2024, 104.4 per cent in March 2025, 104.9 per cent in March 2026, and 104.3 per cent in June 2026. Measured against the deposits its own residents place with it, Kerala's banking system has since 2024 been lending out more than the whole of that base, funding the excess from non-resident deposits that the CD ratio's denominator treats as though they were locally generated savings awaiting local deployment.

As at	Total deposits	NR deposits	Resident deposits	Advances	CD ratio %	Credit / resident deposits %
Mar-2021	6,77,127	2,29,645	4,47,482	4,43,554	65.51	99.12
Mar-2022	7,41,122	2,38,412	5,02,710	4,78,657	64.59	95.22
Mar-2023	7,94,076	2,40,975	5,53,101	5,47,988	69.01	99.08
Mar-2024	8,61,295	2,71,259	5,90,036	6,30,559	73.21	106.87
Mar-2025	9,48,249	2,93,622	6,54,627	6,83,513	72.08	104.41
Mar-2026	10,62,695	3,24,636	7,38,059	7,74,507	72.88	104.94
Jun-2026	10,84,241	3,35,440	7,48,801	7,81,043	72.04	104.31

Source: Author's calculations from SLBC Kerala agenda statistical annexures. Resident deposits are total deposits less non-resident deposits as reported in the source returns.

One caution is needed before reading too much into the above-parity figure. Kerala's resident-adjusted ratio of 104-107 per cent says nothing about whether peer states, similarly adjusted, would not be higher still. Tamil Nadu, Andhra Pradesh and Telangana report headline CD ratios above 130 per cent; their resident-adjusted ratios would depend on their own NR deposit shares, which this article's data do not cover. The resident-deposit adjustment establishes that the wedge between the conventional ratio and the resident-deposit ratio in Kerala is of the order of thirty percentage points -large enough to reverse the sign of the naive policy conclusion. It does not establish that Kerala, once adjusted, lends more intensively than every peer. That comparison requires non-resident deposit data for other states, which the SLBC returns of those states would supply, and which this article flags as the most valuable single extension of this work.

The same arithmetic decomposes the much-discussed rise in the headline ratio. Split the increase between March 2021 and March 2026 into its two parts and 53.4 per cent comes from banks lending more heavily against the resident deposit base. The remaining 46.6 per cent comes from the non-resident share of deposits slipping from 33.9 to 30.6 per cent - a shift in the mix that lifts the measured ratio while no extra rupee leaves any branch. Close to half of the CD-ratio improvement that has been read in Kerala as evidence of a credit revival is an artefact of the denominator.

Three implications follow. First, diagnostic: the standard CD ratio, applied to a region with a large externally generated deposit base, does not measure what its users take it to measure. Second, substantive: the coexistence of a widening gap to the national benchmark with an above-parity resident-deposit ratio is not a contradiction but the signature of the mechanism the international remittance literature predicts. Chami, Fullenkamp and Jahjah (2005) argued that remittances are compensatory transfers responding to household need rather than profit-seeking flows responding to local investment return. Giuliano and Ruiz-Arranz (2009) found that remittances raise growth more strongly in countries with less developed financial systems, on the interpretation that remittances substitute for bank credit by relaxing household borrowing constraints. Applied to Kerala: remittance income directly finances the house construction, education, land purchase, and small-business formation that a resident household elsewhere would finance by borrowing. Remittances do not merely fail to stimulate credit demand - they actively displace it. Third, procedural: a regulatory framework that sets quantified CD-ratio floors against an undifferentiated deposit denominator will systematically mismeasure the regions whose deposit base is most distinctive, and will do so in the direction of penalising them.

A divided banking sector

The aggregate CD ratio is a deposit-weighted average across a banking sector that is unusually heterogeneous in ownership structure even by Indian standards. Disaggregating by bank group produces the single most striking finding of this article: the CD ratio differs sharply and persistently across bank groups, and the gap between public-sector and private-sector banks has been widening.

Bank group	Mar-2021	Mar-2024	Mar-2026
Public sector banks (excl. RRB)	68.34	77.57	80.44
Public sector incl. RRB	70.13	78.91	81.99
Private sector banks	58.35	66.25	62.66
Small finance banks	56.93	43.38	39.51
All commercial banks	64.81	72.41	72.24
Cooperative banks	71.45	83.14	81.79
All-Kerala grand total	65.51	73.21	72.88

Source: Author's calculations from SLBC Kerala agenda statistical annexures.

Public-sector banks' CD ratio rose from 68.3 per cent to 80.4 per cent over the panel. Private-sector banks rose only from 58.4 per cent to 62.7 per cent. What was a 10.0-point gap in March 2021 had become 17.8 points by March 2026. As of the latest returns, public-sector and cooperative banks in Kerala advance over eighty paise of each rupee deposited; their private-sector counterparts advance closer to sixty.

This matters because private-sector banks are also the segment most actively engaged in collecting non-resident deposits. Federal Bank, South Indian Bank, CSB Bank, and the larger pan-Indian private banks between them account for a substantial share of the NRE/NRO deposit franchise. If the "deposit-surplus, credit-deficient" narrative is read as a claim that deposits mobilised in Kerala are disproportionately not being redeployed as credit within the state, the claim is considerably more true of the private-sector segment than of the system as a whole.

Cooperative banks recorded the highest CD ratio of any bank group in every year - 71.5 per cent in March 2021, 83.1 per cent in March 2024, 81.8 per cent in March 2026 - consistent with a deposit base drawn largely from resident sources and a lending mandate directed toward agriculture and local trade. Small finance banks show the most dramatic trend: a CD ratio of 56.9 per cent in March 2021 falling to 39.5 per cent in March 2026, consistent with a business model shifting from microfinance-adjacent lending toward conventional deposit-gathering retail banking.

The bank-group findings recast, without fully resolving, the "extraction" narrative. They are consistent with a specific mechanism - deposits collected by NR-deposit-heavy private banks being disproportionately deployed outside Kerala — but the SLBC data cannot distinguish this from an alternative in which private banks are simply more centralised in credit-sanctioning for reasons unrelated to deposit source. One supply-side factor deserves explicit mention here: lenders operating in Kerala have long reported that non-performing asset recovery is unusually difficult in the state, whether through the civil courts or the tribunals. Banks are commercial creatures; if recovery of principal is uncertain, expected returns on Kerala lending fall for any given contractual rate, and lending contracts regardless of deposit composition. The SLBC returns contain NPA and recovery tables, but their layouts proved too inconsistent across years to reconcile into a panel within the scope of this article. Whether private banks' lower Kerala CD ratios correlate with higher experienced NPAs in the state is a question the data assembled here cannot answer, and it is flagged as a priority for the next round of work.

The sectoral composition of credit

A genuine credit revival reaching farmers and small businesses should show up as a stable or growing priority-sector share of total advances. It has not. It has fallen.

As at	Agriculture %	MSME %	Other priority %	Total priority %
Mar-2021	22.00	14.00	14.00	50.00
Mar-2023	22.27	12.96	11.89	47.12
Mar-2024	23.18	13.66	8.99	45.83
Mar-2026	22.46	13.63	9.78	45.86
Jun-2026	22.55	13.95	9.48	45.98

Source: author's calculations from SLBC Kerala agenda statistical annexures. Non-priority-sector share is 100 minus the total priority-sector share shown.

Priority-sector advances accounted for 50.0 per cent of total advances in March 2021 and 46.0 per cent in June 2026. Agriculture's share was essentially flat; MSME's share held broadly steady; the largest decline was in the residual "other priority sector" category. The mirror image is a rising non-priority-sector share, from 50.0 to 54.0 per cent - a category that includes large-ticket corporate and trade credit, personal loans, and the bank-originated share of the gold-loan market.

One institutional feature not directly visible in the SLBC tables deserves note. Kerala is the headquarters state of India's two largest gold-loan NBFCs, Muthoot Finance and Manappuram Finance. NBFC lending does not appear in the SLBC deposit-and-advance framework at all. Any assessment of credit availability that relies solely on the bank CD ratio will understate total credit access to the extent that NBFCs have substituted for bank lending.

Credit and the real economy

All of this is a story about banking statistics. But credit exists to serve the real economy, and the real economy of Kerala supplies important context for reading the ratios. Three features of that economy matter.

First, Kerala's growth and investment record has lagged its southern peers. State GSDP growth has run below that of Tamil Nadu, Karnataka and Telangana through most of the past decade, and capital formation in the state - public and private capex relative to GSDP - has been correspondingly weaker. A state whose commodity-producing sectors grow slowly generates fewer large, bankable investment projects, and the credit book that results is necessarily weighted toward small-ticket retail and agricultural lending. This is the demand side of the CD-ratio story, and it predates the remittance boom: Narayana (2003) attributed Kerala's low CD ratio to exactly this feature two decades ago, and the sectoral composition data in this article suggest the underlying structure has not been transformed since.

Second, Kerala's labour market is anomalous in ways that bear directly on credit demand. The Periodic Labour Force Survey records Kerala's unemployment rate at 7.2 per cent in 2023-24, against an all-India figure of 3.2 per cent; youth unemployment stands near 30 per cent. The labour force participation rate, at roughly 56 per cent, sits below the national average, pulled down in particular by low female participation despite the state's high female literacy. A labour market in which a large share of the working-age population is outside employment, and in which those seeking work face long search times, is one in which household investment in enterprise - the classic driver of small-business credit demand - is structurally muted. Remittances fill part of the gap: they finance consumption, housing and education for households whose labour-market earnings are weak, and in doing so they substitute for the borrowing that would otherwise finance those expenditures.

Third, Kerala's households are not under-borrowed by national standards. The National Statistics Office's 78th round records nearly three in ten Kerala adults as indebted - 29.9 per cent, against a national average of 14.7 per cent, and third among major states behind Andhra Pradesh (43.7 per cent) and Telangana (37.2 per cent). The southern region as a whole records the highest financial inclusion and the highest indebtedness of any Indian region. High household debt in Kerala coexists with a middling CD ratio for the reasons this article has documented: a large share of the borrowing is met by NBFCs rather than banks, and a large share of the expenditures that elsewhere generate borrowing are met by remittances instead. The point is not that Kerala households have too much debt; it is that the CD ratio cannot be read as a measure of household credit deprivation when the households in question already carry debt burdens well above the national average, financed substantially outside the banking system the ratio measures.

Explaining the gap

No single explanation is sufficient on its own, and the data do not permit assigning precise relative weights. The most defensible synthesis is the following.

The starting point must be that "persistently sub-parity CD ratio" is itself the wrong description of what requires explaining, since Kerala's advances exceed its entire resident deposit base and have done so since 2024. What requires explaining is the wedge between that measure and the conventional one, and the residual gap to the national benchmark that survives after the wedge is accounted for.

With the question posed that way, the answer is the joint product of a genuinely distinctive deposit structure - a large, migration-driven, savings-oriented non-resident deposit base that mechanically depresses the ratio, concentrated disproportionately in the private-banking segment - and a real, if narrowing, structural weakness on the credit-demand side rooted in the real economy: slow growth in commodity-producing sectors, a labour market with low participation and high unemployment, and an enterprise base that remains dominated by small units generating small-ticket credit demand. Institutional differences in how public-sector, cooperative, and private banks deploy deposits locally appear to compound rather than substitute for these two forces, most visibly in the widening public-private CD-ratio gap; and the difficulty of NPA recovery in Kerala, reported anecdotally by lenders and not measurable from the data assembled here, may independently deter private-bank lending for purely commercial reasons.

None of this amounts to either a simple vindication of the "extractive banking" narrative that dominates Kerala's political discourse, or a simple dismissal of it in favour of a purely structural-demand account. Both mechanisms are real, they interact, and current public administrative data are not sufficiently granular to say with confidence how much of the persistent gap each accounts for.

Policy implications

The starting point for policy is not the banking system but the real economy. If Kerala's CD ratio is low in substantial part because the state's enterprise base generates comparatively little large-ticket credit demand, then the core requirement for creating more credit in Kerala is stimulating larger firms to invest in the state. That means industrial policy - land, infrastructure, power, logistics - aimed at raising the average scale of Kerala's manufacturing and services units, and measures to retain Kerala-origin entrepreneurial capital within the state rather than see it deployed in larger ventures elsewhere in India or abroad. Larger firms investing in Kerala would attract credit automatically, including the local deployment of NRI savings that the present structure fails to achieve. Credit follows investment; it does not precede it. A state that fixes its investment climate will find its CD ratio takes care of itself, in either direction the real economy dictates.

The most immediate banking-policy context is the RBI's February 2026 draft revision of the Lead Bank Scheme guidelines, circulated for public comment with a deadline of 6 March 2026. For the first time, the draft proposes a quantified, binding CD-ratio floor - 60 per cent - specifically for rural and semi-urban bank branches, together with a tiered district-level monitoring structure: districts with a rural/semi-urban CD ratio between 40 and 60 per cent are to be monitored by District Consultative Committees, districts below 40 per cent are to be referred to a special sub-committee, and districts below 20 per cent are to be classified as a distinct "special category" triggering state-government infrastructure-support commitments.

A prior objection to the norm's construction needs stating, because the evidence bears on it directly and because it applies to every state, not only Kerala. The proposed floor is a ratio of advances to deposits, with deposits taken undifferentiated. The definitional choice alone shifts Kerala's measured ratio by roughly thirty points. The same advances, on the same day, give 72.9 per cent when set against all deposits but 104.9 per cent when set against resident deposits only. A regulatory threshold applied to a quantity that can be moved thirty points by a definitional choice is one whose sorting will be driven substantially by that choice. And the direction of the error is not neutral. The burden falls hardest on exactly those districts and bank groups holding the largest non-resident deposits: the coastal belts of highest out-migration, where households sent workers abroad and received savings in return. Their banks then score poorly for not lending against money the local economy never produced and, judging by the resident-deposit ratio, does not actually need.

A straightforward remedy is available and would cost the RBI nothing in additional data collection, since non-resident deposits are already separately reported in the SLBC returns: compute the norm against resident deposits, or publish both ratios and apply supervisory judgement to the difference between them.

With that objection registered, Kerala's position against the norm as drafted is close but not comfortable. The state's aggregate semi-urban CD ratio stood at 62.1 per cent in March 2026 and 61.7 per cent in June 2026 - above the proposed floor, but by a margin that a single adverse quarter could plausibly erase. The state's rural CD ratio, by contrast, has been comfortably above the floor throughout the panel (83.5 per cent in March 2026). It is Kerala's semi-urban branches, not its rural ones, that sit closest to the new norm - a configuration that may be specific to Kerala's unusually blurred rural-urban settlement geography and that the RBI's national guideline, designed with more conventionally agrarian low-CD-ratio states in mind, may not have anticipated.

One data gap deserves explicit flagging. The SLBC returns do not include a genuine district-wise breakdown of deposits, advances, or the CD ratio as stock variables. The only district-level series available is the Annual Credit Plan achievement table, which reports credit disbursed against locally negotiated targets - a flow measure whose target-setting process is endogenous to realised disbursement, so that achievement ratios clustered just above 100 per cent carry no reliable signal about underlying credit adequacy. This article therefore cannot say which, if any, of Kerala's fourteen districts would fall into the RBI's monitoring tiers under the new framework. Either district-level stock data exists internally and simply is not published, in which case its publication would be a straightforward step toward making the new framework's operation transparent; or it does not yet exist in usable form, in which case its construction should be treated as a prerequisite for implementing the new norm credibly in Kerala's case.

A broader methodological point

The CD ratio is used across India, and in variants across much of the developing world, as a summary indicator of whether a region's banking system is serving it adequately. It is computed, everywhere, against an undifferentiated deposit denominator. Wherever a substantial part of that denominator is generated outside the local economy - by migrant remittances, as in Kerala, but equally by resource rents booked locally, by pension or transfer inflows, or by any deposit base whose origin is disconnected from local investment opportunity - the ratio will understate local credit intensity by an amount that rises with the externally generated share, and will do so in a way that looks exactly like bank underperformance. In Kerala's case the distortion is of the order of thirty percentage points, large enough to reverse the sign of the policy conclusion. Regulators proposing to convert this indicator into a binding quantitative floor are proposing to give that measurement error regulatory force.

Kerala's low, and now less low, credit-deposit ratio has been a fixture of the state's economic self-description for over two decades, treated by turns as an injustice, an embarrassment, and a structural fact of life, but examined systematically, with contemporary data, remarkably rarely. What the data assembled here suggest is that both of the confident readings on offer have been wrong in instructive ways: the state's banks are not withholding credit from Kerala's residents, who receive more than they deposit, and neither is Kerala quietly catching up with the rest of the country, from which it has continued to fall behind. Both errors have the same origin: the habit of reading a ratio without asking what is in its denominator.

Bibliography

Bayoumi, T.A. and Rose, A.K. (1993), "Domestic Savings and Intra-National Capital Flows", European Economic Review, 37(6), pp. 1197-1202.

Chami, R., Fullenkamp, C. and Jahjah, S. (2005), "Are Immigrant Remittance Flows a Source of Capital for Development?", IMF Staff Papers, 52(1), pp. 55-81.

Giuliano, P. and Ruiz-Arranz, M. (2009), "Remittances, Financial Development, and Growth", Journal of Development Economics, 90(1), pp. 144-152.

Government of India (2026), Economic Survey 2025-26, Statistical Appendix, Table 3.3, Ministry of Finance, New Delhi.

Narayana, D. (2003), "Why is the Credit-Deposit Ratio Low in Kerala?", Working Paper 342, Centre for Development Studies, Thiruvananthapuram.

National Statistics Office (2025), "Financial Inclusion and Indebtedness in India: Insights from NSS 78th Round", Ministry of Statistics and Programme Implementation, Government of India.

Periodic Labour Force Survey (2024), Annual Report 2023-24, Ministry of Statistics and Programme Implementation, Government of India.

Reserve Bank of India (2026), Draft Revised Guidelines on the Lead Bank Scheme, circulated for public comments, February 2026.

State Level Bankers' Committee, Kerala (2021-2026), Agenda Notes and Statistical Annexures, convened by Canara Bank as SLBC convenor bank.

Abhilash S. is Deputy Secretary, Finance Department, Government of Kerala. The author thanks the SLBC Kerala convenor bank's office for making the agenda notes available in the public domain, and two anonymous referees for comments on an earlier draft. The views expressed here are the author's own and do not represent the position of the Government of Kerala.

"Fairy Tales of Western Development" by Yuen Yuen Ang: A review

by Anirudh Burman.

Introduction

Yuen Yuen Ang's "Fairy Tales of Western Development: The Non-Democratic Origins of Fiscal Capacity in Britain, the US, and China" challenges an influential account of fiscal-state formation. According to her, this prevailing account explains that representative institutions secured citizens' consent to taxation in exchange for public goods. Ang argues that this account gives an incomplete, sanitised history of Western development. This has then shaped policy advice to poorer countries. She instead emphasises financial improvisation, public-private arrangements, and cycles of crisis and institutional repair. In the essay, she seeks to revise that history and broaden the meaning of fiscal capacity beyond tax collection.

Ang's argument is useful for gaining a different perspective on how Indian cities raise and spend money. In my opinion, the prevalent discourse on improving the fiscal condition of Indian cities over-emphasises the importance of property tax. This property-tax-centred reform agenda starts from weak collections and seeks to increase both receipts and their share of municipal revenue. Yet, cities also use land-based instruments, including development charges and premiums for additional floor space and other development rights, to finance infrastructure. Property-tax reform is important, but it must not be the predominant focus of urban public finance. Applying Ang's argument, especially alongside John Wallis's history (discussed later), focuses attention on how land-based finance can expand the resources available to cities and change their reliance on particular taxes. The important question is how these instruments are designed and governed.

Ang uses "taxless finance", a term she credits to Wallis, to describe arrangements that finance infrastructure without raising current taxes. These include land monetisation, credit, shadow finance, and the sale of monopoly rights. They can mobilise resources without formal public consent. However, they leave taxpayers responsible for losses when projects fail. To this, Ang adds the concept of Adaptive Fiscal Capacity (AFC). AFC is a government's ability to raise, manage, and adjust its mix of tax and taxless resources as conditions change. She uses this concept to explain the process of fiscal capacity development in countries like the UK, USA, and China.

Ang's argument concerns how fiscal and economic development occur together. She argues, based on the evidence she presents, that early risk-taking and credit expansion in the developmental path of states may be necessary, with later regulation and taxation consolidating the gains from such early risk-taking. She also distinguishes the capability of enforcing tax compliance from developing an economy capable of generating tax revenue. This promotes a developmental reading of taxless finance, not merely a view of it as a temporary response to weak taxation.

Argument

Ang first questions the historical account behind the prevailing institutional and democracy focused explanations of fiscal strength. She asks how fiscal capacity actually developed, rather than assuming that representative government and consensual taxation deterministically led to this capacity creation. Britain, the United States, and China provide the comparisons through which she develops her alternative account. In this argument, infrastructure finance matters because land, credit, and public-private arrangements helped governments mobilise resources. The narrower question of how states have actually financed infrastructure when tax receipts are insufficient is one important implication of this history.

Ang uses Britain's history to challenge the prevailing account of fiscal development. The familiar story stresses how constitutional changes after 1688 protected property and made public borrowing more credible. Ang argues that this must be considered alongside the equally significant history of heavy taxation, monopoly profits, colonial extraction, slavery, and trade policies that protected domestic producers. Her point is that constitutional reform alone cannot explain how Britain financed its development.

Ang's account of the United States more clearly traces the change in financing arrangements over time. In the early to mid-1800s, US state governments used land, banks, bonds, and corporate charters to support infrastructure when direct taxation faced resistance. Ang connects these arrangements to the Panic of 1837, state defaults in 1841-42, and later reforms. These reforms limited borrowing, changed the rules for forming corporations, and made tax arrangements more uniform. The case shows how arrangements that enabled infrastructure investment were later regulated and redesigned. Those reforms are part of Ang's narrative of fiscal development. In this account, the earlier financing was not just a mistake, but an important strategy in its own right.

Ang cites Wallis extensively to support this argument. Wallis documents how many American states reduced or eliminated state property taxes as other income became available. American state governments initially relied on property taxes, but expanded their investments in banks, canals, and railroads through private, public, and mixed corporations. They earned income from canal tolls, dividends on bank stock, and land sales, alongside indirect taxes on business. Rising asset income allowed many states to reduce or eliminate their state property taxes. These governments did not merely supplement inadequate taxation. They replaced an established tax source, state property taxes, as other receipts became available.

Wallis presents a historical account that Ang uses to argue that taxless finance can contribute to development. It is not just a stop-gap arrangement or a necessary evil. It can expand the resources available to governments and, in some circumstances, replace established taxes. Fiscal development involves changes in the mix of taxes, asset income, and borrowing, together with the institutions needed to govern them.

Ang then moves on to an analysis of China's development. After market reforms began in 1978, fiscal contracts between the centre and provinces allowed the latter to retain revenue above negotiated quotas. Local governments also kept extra-budgetary income, including profits from township and village enterprises, encouraging them to promote industrial growth. The 1994 tax-sharing reform replaced these bargains with a unified allocation of taxes and strengthened central revenue collection. Local governments retained responsibility for education, health care, and infrastructure but lacked authority to introduce new taxes and faced restrictions on direct borrowing.

In this context, land-use-right leases became an important source of local funds. Ang describes local governments converting rural land for urban or commercial use, compensating farmers, and preparing sites with basic infrastructure. Developers then bid for fixed-term rights to use the land and paid a one-time land-transfer fee. The receipt was therefore payment for a lease of use rights, not an annual property tax. Local governments gained access to substantial funds.

Land also provided collateral for borrowing through government financing vehicles, state-owned companies established by local governments to fund infrastructure. Ang traces one model to a 1998 collaboration between the China Development Bank and Wuhu City Government, which bundled construction projects so that financing vehicles could borrow and repay collectively. The model spread, and local governments could borrow through these companies from local banks despite restrictions on direct public borrowing. Ang connects this financing to the expansion of public utilities, roads, and other infrastructure from the 2000s (Ang 2025, p. 13).

The resulting investment created both development opportunities and debt exposure. Repayment depended on projects generating growth and revenue, while falling land prices or wasteful investment could leave local governments unable to meet their obligations. Ang describes attempts by the central government to control these risks, but reports that debt continued to grow. China therefore supports her argument that taxless finance helped build infrastructure while also showing an unresolved problem of institutional adaptation.

How Ang's thesis relates to earlier work

Earlier scholarship already questioned the idea that states grew through voluntary agreements between rulers and citizens. Ang cites many of these works in introducing her argument. Tilly's account placed war and coercion at the centre of European state formation (Tilly 1990). Ang is therefore not the first to challenge a peaceful story of consent and taxation. She, however, draws attention to the range of financial arrangements through which governments acquired resources, especially those outside ordinary taxation.

North and Weingast argue that the constitutional settlement after 1688 made government promises more credible and substantially expanded its ability to borrow. Parliamentary constraints reduced the Crown's ability to alter agreements, giving lenders greater confidence in repayment (North and Weingast 1989). This does not conflict with Ang's emphasis on taxless finance. Borrowing is itself one of the instruments she describes. Their argument helps explain the institutional conditions that made such finance possible, while hers examines its role in development and subsequent reform. Ang explicitly acknowledges the borrowing mechanism, although she challenges the broader claims North and Weingast make with regard to post-1688 institutional change. Her evidence of coercion, monopoly privileges, and colonial extraction broadens the historical account. However, it does not by itself refute the narrower proposition that credible commitments increased access to public credit.

Besley and Persson explain low taxation through factors such as narrow tax bases, weak administration, limited transparency, and poor compliance (Besley and Persson 2014). Ang shifts attention from this explanation to the historical formation of fiscal systems on the one hand, and the relationship between financing development and generating taxable economic activity on the other. One helps explain weaknesses in tax collection; the other widens the inquiry to how investment, revenue sources, and fiscal institutions develop.

Indian cities and local government finance

Indian cities need to finance expansion while also paying for existing services. Their ability to do so depends on how powers and revenues are divided between governments. Article 243W of the Constitution of India provides that a State Legislature "may, by law, endow" municipalities with powers and responsibilities for functions including those in the Twelfth Schedule. Article 243X similarly provides that a State Legislature may "authorise a Municipality to levy, collect and appropriate" taxes, duties, tolls, and fees. Municipal corporations must therefore be understood within a wider system of State governments, development authorities, and other public agencies.

Property-tax reform addresses a real weakness, but it should not be the only test of municipal fiscal strength. The RBI reports that property-tax revenue growth has not kept pace with rising urban property values. It also identifies development charges, betterment charges, and building-approval fees among municipal non-tax revenues (Reserve Bank of India 2024). Increasing property-tax collections and increasing their share of revenue are different objectives. That share can fall even when collections improve if other receipts grow faster. Given the institutional structure of India's urban governance, we must also distinguish money received by municipalities from receipts collected by development authorities and other urban agencies.

Land-based finance is already part of India's policy approach to urban infrastructure. Ang's argument is useful here, since we can study the current fiscal situation within her paradigm of fiscal development, and not understand the low levels of property tax collection merely as an indicator of weak property taxation. The policy implication is to design instruments properly to finance investment now while supporting reliable revenues over time. This requires clear rules for collections, spending, and future obligations.

These instruments perform different functions. A development charge may recover infrastructure costs associated with new development. A premium floor space index (FSI) charge is a payment for permission to build additional floor area. A land sale raises money by disposing of a public asset. These receipts should not be treated as interchangeable merely because they are linked to land. Recurring income need not come only from taxes. But income from operating or holding an asset differs from selling it, just as receipts tied to new development differ from a continuing annual revenue stream.

These differences matter when designing a fiscal system. Taxes, land-based receipts, borrowing, and transfers need rules suited to their functions, so that financing investment today also supports the ability to meet continuing obligations.

A related concern is about the allocation of revenues. Raising money for a city is not the same as giving its municipality control over that money. A development authority may collect a land-based charge while a municipal corporation later pays to maintain the infrastructure. In such a case, it matters who receives the money, who decides how to spend it, whether its use is restricted, and who pays for continuing services. Ang's framework also considers how governments adapt their relations with one another and manage future obligations. Applied to Indian urban finance, the framework directs attention to how receipts and service responsibilities are divided. Institutionalising land-based finance therefore requires more than regularising collections. It also requires arrangements that connect investment decisions to the resources and responsibilities needed to sustain services.

Contributions and limitations

Ang makes three useful contributions. She challenges a selective account of Western fiscal-state formation and its use as a model for developing countries. She places taxless finance and institutional adaptation within the explanation of fiscal development. She also uses China to help construct a comparative argument, rather than treating Western experience alone as the source of general theory.

This review draws on Ang's argument that early risk-taking and credit expansion may be necessary, and that regulation and taxation can consolidate earlier gains. Consequently, the later redesign of financial instruments is part of fiscal development, not simply a correction to an undesirable practice. Taxless finance can help governments build infrastructure and develop their economies rather than merely compensate for weak tax collection. Wallis's account adds that this process can also involve reducing established taxes. Taken together, these arguments support examining how instruments are designed and institutionalised without assuming that taxation must take a larger share.

The distribution of costs and benefits also needs more attention. Ang discusses heavy excise taxes borne by UK consumers whose interests Parliament did not necessarily represent, and the possibility that taxpayers would bear losses from failed local investment in China. These examples make the allocation of risks and costs part of the assessment of fiscal development.

How governments move from raising resources to sustaining services still needs explanation. This is a question about how the developmental process works, not a reason to dismiss its earlier stages. Ang's account creates the ground for a closer examination of the reforms that turn early financing arrangements into lasting fiscal capability.

Conclusion

"Fairy Tales of Western Development" challenges the idea of representative democracy and consensual taxation as the defining history of fiscal-state formation. Ang's alternative account additionally emphasises financial improvisation, non-democratic arrangements, and institutional repair. The American case connects infrastructure finance to later regulation and tax reform. China shows the scale of investment made possible through land and borrowing, alongside unresolved fiscal pressures. Britain challenges a selective account of Western development. This thesis supports a broader interpretation of fiscal development as a changing mix of resources and institutions, often extracted through coercion, resulting in their present forms after a series of trials and experiments.

For Indian cities, land-based finance should be assessed as part of the fiscal system in its own right, not only as compensation for weak property taxation or a temporary step towards greater tax dependence. Property tax can support recurring services. Development charges and premiums may finance infrastructure, and borrowing can spread capital costs over time.

Governing this changing mix requires institutional work. Collection rules, spending powers, debt obligations, and responsibility for maintenance must fit together, especially when different agencies receive revenues and provide services. The question is how to design improvements to existing extractive processes so that the design incrementally creates lasting fiscal strength.

Bibliography

Ang, Yuen Yuen. 2025. "Fairy Tales of Western Development: The Non-Democratic Origins of Fiscal Capacity in Britain, the US, and China." Forthcoming in Political Economy Rebooted, edited by Marion Fourcade, Greta Krippner, and James A. Quinn. Duke University Press. SSRN 5661111.

Tirumala, Raghu Dharmapuri, and Piyush Tiwari. 2021. "Land-Based Financing Elements in Infrastructure Policy Formulation: A Case of India." Land 10 (2): 133.

Ministry of Urban Development, Government of India. 2017. Value Capture Finance Policy Framework.

Reserve Bank of India. 2024. "Own Sources of Revenue Generation in Municipal Corporations: Opportunities and Challenges."

Besley, Timothy, and Torsten Persson. 2014. "Why Do Developing Countries Tax So Little?" Journal of Economic Perspectives 28 (4): 99-120.

North, Douglass C., and Barry R. Weingast. 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England." Journal of Economic History 49 (4): 803-832.

Tilly, Charles. 1990. Coercion, Capital, and European States, AD 990-1990. Oxford: Basil Blackwell.

Wallis, John Joseph. 2000. "American Government Finance in the Long Run: 1790 to 1990." Journal of Economic Perspectives 14 (1): 61-82.

Anirudh Burman is a research at XKDR Forum, working on land, urban governance, public finance, and regulation.

Announcements

Call for papers: Finance for the Clean Energy Transition

Date: 16th November 2026

Organisers: XKDR Forum
Venue: XKDR Forum, Mumbai, India

Mode: Hybrid

Overview

XKDR Forum invites submissions for its upcoming conference, Finance for the Clean Energy Transition. The conference brings together scholars and practitioners across economics, finance, corporate strategy, law, public administration, and political economy to examine how financial markets, capital flows, and regulatory institutions shape the financing of the clean energy transition and, ultimately, long-run economic growth in emerging markets, with a primary focus on India.

Submissions are invited that advance theoretical, empirical, legal, or policy-oriented research. Interdisciplinary approaches, comparative perspectives, and practitioner-oriented research are particularly welcome.

Themes and Topics

The conference will focus on, but is not limited to, the following themes:

• Cost of Capital and Clean Energy Investment: How the cost and availability of capital affect clean energy deployment; the role of domestic savings and foreign capital; financing constraints for capital-intensive technologies; and the implications of financing costs for competitiveness and green economic growth.
• Foreign Capital and Cross-Border Finance: How foreign debt, equity, and global institutional capital can reduce the cost of capital and improve project viability; restrictions on external commercial borrowing and foreign investment; currency risk; and the cost of long-horizon hedging.
• Project Finance, Risk Allocation and Political Economy: How project finance, contracts, and business models allocate construction, demand, currency, and regulatory risks; the role of power purchase agreements, contract enforcement, utility creditworthiness, subsidies, and guarantees in project bankability; and the political economy of who bears costs, captures benefits, and shapes financial and regulatory reforms.
• International Comparative Evidence: Lessons from countries that have mobilised private and foreign capital for the energy transition, including evidence on financing costs, institutional arrangements, and regulatory and financial innovations.

Submissions beyond these themes that align with the overall scope of the conference will also be considered.

Disciplinary Scope

The conference is interdisciplinary and welcomes contributions from:

• Economics and finance: empirical and theoretical research on investment, capital markets, financing costs, and capital flows;
• Law: analysis of statutory and regulatory frameworks governing clean energy investment and finance;
• Management and strategy: research on corporate investment and financing decisions;
• Public administration: analysis of regulatory workflows, institutional design, and state capacity; and
• Political science and history: research on the political economy and evolution of energy and financial reforms.

Submission Guidelines

Submit your full paper at this Submission Portal.

All submissions will undergo review by the XKDR Internal Review Committee. Selection will be based on the originality, rigor, and relevance of submissions to the conference themes.

Important Dates

• Submission Deadline: 20 October 2026

• Notification of Acceptance: 30 October 2026

• Workshop Date: 16 November 2026

Contact

Email: outreach@xkdr.org

Web: https://www.xkdr.org/event/finance-for-the-clean-energy-transition

Renewable Energy with Storage Can Match Coal’s Reliability and Operating Profile at a Lower, Fixed Price: Evidence from India's Market Test

by Amol Phadke, Nikit Abhyankar, and Umed Paliwal.

Despite dramatic declines in clean-energy costs, more than \$1 trillion investments in new coal and gas plants is under consideration worldwide, largely because conventional plants are assumed to be the only economical way to provide reliable, round-the-clock power, such as that required by data centers. India’s recent “thermal-mimic” auction directly tested this assumption by requiring renewables paired with storage to match the reliability and operating profile of conventional plants. Several major developers offered to provide this service at prices below those of conventional power. This calls for reassessing planned coal and gas power investments, especially because renewables combined with storage are also faster to deploy, modular, and cleaner. It also raises a broader question: would consumers, especially large industrial users, be better served by procuring low-cost clean power directly in a more competitive and less regulated market, rather than relying on monopoly utilities to purchase power on their behalf?

Despite dramatic progress in renewable energy and battery storage, more than a trillion dollars of investment in new coal and gas plants remains under consideration globally

The transformation in renewable energy over the past decade has been extraordinary, both in scale and cost. Solar PV and battery costs have fallen by nearly 70-80%, while global deployment has accelerated rapidly. In 2025 alone, the world added more than 600 GW of solar capacity, and solar continues to attract hundreds of billions of dollars of investment annually (IEA, 2026). India is at the forefront of this transformation, adding almost 50 GW of solar in 2025 and overtaking the United States to become the world’s second-largest solar market after China. Solar tariffs in India are now around ₹2.5/kWh, while solar + 4 hours of storage tariffs have reduced to as low as ₹2.9/kWh (SECI, 2025).

There is also growing operational evidence that batteries can support grid reliability at scale. Batteries are already supplying several gigawatts during critical peak periods in Texas, while California now has more than 21 GW of battery resources, increasingly shifting abundant daytime solar generation into the evening peak.

And yet there is an important paradox: power systems around the world are still planning enormous investments in new coal and gas generation. The United States has more than 250 GW of proposed fossil-fuel generation, predominantly gas. China and India are considering more than 200 GW and 100 GW, respectively, of additional coal capacity. Large technology companies such as Meta, despite having net-zero emissions commitments, are choosing to build gas generation capacity at scale. Taken together, these projects could represent well over a trillion dollars of new thermal investments, locking in massive greenhouse emissions for decades.

Why do planners still reach for coal and gas power plants?

The rationale for continued investment in fossil-fuel generation, despite record-low renewable-energy and storage costs, rests largely on two concerns.

First, battery storage today is typically deployed with two to four hours of duration—enough to shift inexpensive midday solar generation into the evening peak. But many major loads, including data centers and industrial facilities, require electricity around the clock. The conventional argument is therefore that storing enough solar energy to supply power through the 10 to 16 hours when solar output is low or zero would be prohibitively expensive.

Second, solar paired with storage is often assumed to be inherently less reliable than coal or gas because of weather variability, including periods of persistent cloud cover. Under this view, renewables and short-duration storage can supply an increasing share of electricity, but the system still requires conventional “firm” resources capable of delivering power whenever needed.

This question is especially important for India. Industry already accounts for a large share of electricity demand and requires substantial round-the-clock supply. Cooling demand increasingly extends well into the evening, while rapid growth in data centers, advanced manufacturing, electric mobility, and other new loads will add further demand for reliable, affordable 24×7 power.

India has already demonstrated that solar plus storage can economically shift cheap midday electricity into the evening peak. But the harder question is different: can renewable energy and storage reliably supply power through the 10–12 hours when solar generation falls to zero—and do so at a cost competitive with new thermal power plants?

How India designed a market test for firm renewable power

That is what makes the Solar Energy Corporation of India’s (SECI) recent 1,000 MW “thermal-mimic” FDRE-RTC auction, among the first of its kind globally at this scale, so important.

Rather than asking developers simply to supply renewable electricity or meet a short evening peak, SECI asked them to bid for a product designed to replicate the operating profile and contractual availability of a conventional thermal power plant. Developers would combine renewable generation and storage to provide firm, dispatchable power under a 25-year contract—similar in scale and duration to a large thermal power purchase agreement (PPA).

The auctioned profile closely follows the way India’s thermal fleet operates today: delivering the most electricity during the evening, night, and early morning, while backing down during solar-rich midday hours.

Figure 1: Average hourly net load, thermal-fleet operation, and thermal-mimic generation profile

Generators must supply at least 90% of contracted capacity during six hours nominated by the buyer within the 6 p.m.–10 a.m. window, at least 70% during the remaining non-solar hours, and 50–60% during solar hours. Performance is measured in every 15-minute block, with shortfalls penalized at 1.5 times the contract tariff. This binding 15-minute performance requirement was particularly important because earlier FDRE contracts allowed developers considerably more flexibility in how they met their delivery obligations. The thermal-mimic auction therefore represents a more stringent test of whether renewable energy and storage could reproduce the operating profile of firm conventional generation.

What did the market discover?

The answer was striking: “thermal-mimic” firm renewable power cleared at ₹5.25–5.26/kWh, fixed in nominal terms for 25 years. At this price, renewable energy combined with storage is cheaper than new conventional firm power in India.

This gives India something it did not have before: a competitively discovered market benchmark for renewable power designed to perform much like conventional firm generation. For utilities planning new capacity, the relevant comparison is therefore no longer between intermittent renewables and coal, but between different technologies capable of meeting the same underlying power requirement.

Is the price sustainable?

A natural question is whether ₹5.25/kWh reflects a replicable market price or simply an unusually aggressive outlier bid.

Figure 2: Results of the thermal mimic auction with winning bidders in green and brown, while red shows bidders that did not win the auction

The auction results provide considerable reassurance. Sixteen developers participated, with seven securing capacity and all winning bids falling within the narrow range of ₹5.25–₹5.26/kWh. NTPC Renewable Energy, the renewable arm of India’s largest thermal power generator, bid only 3% above the winning tariff, while ReNew, one of India’s largest private renewable developers, bid less than 1% above it. The close clustering of bids from two very different and large developers provides further evidence that the winning price was not an outlier. It is consistent with the underlying economics created by rapidly falling solar and battery costs.

How reliable is the project?

The remaining question is whether such a system can maintain the required output during difficult conditions, particularly monsoon periods, unusually cloudy days, and successive days of weak solar generation.

Paliwal et al. (2026) tested this using ten years of hourly weather data across ten Indian states. They find that for every 1,000 MW contracted, they find that a configuration of about 3 GW of solar and 12 GWh of battery storage in Rajasthan can deliver the thermal-mimic profile at an all-in cost below the ₹5.25/kWh auction price. In states with weaker solar resources or stronger monsoon effects, roughly 10–20% more solar is required, while storage remains around 12 GWh; even there, the modeled costs remain within about 7% of the auction price.

Earlier studies had already shown that this type of system could be technically feasible. (Chojkiewicz et al., 2025; Ember; IRENA). What the SECI auction adds is market evidence: major developers are now willing to put binding commercial bids behind that technical proposition. Projects of this scale remain rare globally. For example, Masdar’s 1 GW 24/7 clean-energy project is another prominent example.

A recent CSEP analysis cautions that low storage-auction tariffs can understate the cost of firm power when contracts allow monthly averaging or leave difficult hours to the buyer; under a much stricter every-hour firmness requirement, it estimates costs of roughly ₹8.3–11.8/kWh (Vijay and Tongia, 2026). The thermal-mimic auction addresses much of this concern by specifying output in 15-minute blocks every single day, and with explicit penalties for shortfalls, rather than relying on annual or monthly energy targets.

Three additional advantages not priced in the “thermal-mimic” market test

Recent analysis by Paliwal, Abhyankar and Phadke 2026 explains how this result is achievable and highlights three particularly important advantages beyond just lower prices for comparable performance

1. The cost advantage is significantly understated: ₹5.25/kWh stays fixed for 25 years while conventional power costs rise

The ₹5.25/kWh auction price is not only below the starting price of recently contracted coal power, it is fixed in nominal terms for 25 years. That makes the contract a long-term hedge against fuel-price and freight cost inflation.

Figure 3: Actual and projected utility power purchase costs, average realized revenue of NTPC, recent coal PPA prices, and thermal-mimic auction price

Data sources: PFC, Reports on Performance of Power Utilities, 2009-10 to 2024-25 editions (power purchase cost; FY2010-12 reconstructed from expenditure annexures); NTPC annual reports FY2012-FY2026 (average realized tariff, standalone). Projections: seven TBCB coal PPAs MarNov 2025 (11.9 GW, Rs 5.38-6.30, average 5.81; line anchored on the Rs 5.84 midpoint per SERC adoption orders: UPERC 2228/2025, MPERC 121/2025, WBERC, BERC 36/2025, AERC)

As shown in the figure, India's average power-purchase cost has been rising at 4-5% per year - from about ₹2.7/kWh in FY2010 to ₹5.4/kWh in FY2025 (solid blue line). NTPC's average realised tariff, predominantly reflecting its coal-based generation fleet, increased at a similar rate from about ₹2.6/kWh in FY2011 to ₹4.8/kWh in FY2026.

More importantly, several new coal power purchase agreement (PPA) prices already start above the thermal-mimic price. For example, the seven competitively procured coal PPAs signed in 2025 opened at ₹5.4–6.3/kWh (average of Rs 5.8/kWh). Coal tariffs are not fixed for the contract duration. They contain a fixed cost component (which typically includes depreciation, interest, maintenance etc) and a variable or fuel cost component that escalates over time. Assuming the variable cost increases at 2.6% per year (according CERC tariff norms), the average new coal PPA price could be as high as ₹7.4/kWh by 2050 (dotted red line). The thermal-mimic contract price, by contrast, remains fixed at ₹5.25/kWh throughout (solid golden line). For the 1 GW contract size operating at ~70% capacity factor, this is equivalent to an annual saving of Rs 350 - 1,300 Cr/yr, with a nominal NPV of over Rs 5,700 Cr over 25 years (assuming 10% discount rate).

The difference becomes even clearer in real terms. A nominal tariff fixed at ₹5.25/kWh over 25 years is equivalent to roughly ₹3.79/kWh in real 2026 rupees (assuming 4% annual inflation). In other words, the real cost of power under the contract declines every year. The same is true in dollar terms: ₹5.25/kWh is about \$55/MWh at ₹95 per dollar today; with a 3% annual depreciation of the rupee compared to USD (similar to long-term historical trends), it would fall to roughly \$41/MWh by 2036 and \$27/MWh by the final year of the contract.

The key comparison, therefore, is the fixed price for 25 years versus a coal tariff that starts higher and remains exposed to fuel-cost escalation.

2. Shorter lead times and modularity reduce the costs of overbuilding or underbuilding amid rapid but uncertain demand growth

A second major advantage is the combination of rapid deployment and modularity. The auction requires projects to be commissioned in less than two years, while conventional power plants typically require much longer development and construction periods. The results also show that developers are willing to offer similar tariffs for projects as small as 100 MW, roughly one-tenth the scale of a large coal plant.

Firm solar-plus-storage capacity can therefore be added incrementally as demand materializes. This reduces the risk of committing prematurely to large, indivisible assets that could leave the system with costly excess capacity or supply shortfalls if demand differs from forecasts. Such flexibility is especially valuable given the deep uncertainty surrounding the scale, timing, and location of AI-driven electricity demand.

3. Significant environmental benefits

Carbon emissions impose costs on every country, including the country that emits them. India has contributed relatively little to historical emissions, but it is highly exposed to climate damage. One study estimates India’s domestic social cost of carbon at \$86 per tonne of CO$_2$, with a 66 per cent uncertainty range of \$49 to \$157, the highest central estimate among the countries studied. Assuming coal emissions of 0.9 tonnes/MWh and an exchange rate of ₹95 per dollar, this corresponds to domestic damages of roughly ₹4 to ₹13/kWh, with a central estimate of about ₹7/kWh. These estimates are uncertain, but the policy implication is clear. Even if India disregards the damage its emissions impose on other countries, the avoided damage within India should be included when comparing coal with clean power. (Ricke et al., 2018)

Coal generation also imposes substantial local air-pollution costs. Cropper et al. (2021) estimate that premature mortality caused by air pollution from India’s coal-fired power plants imposes damages of ₹0.73/kWh, using a value of statistical life of ₹10.3 million. The authors describe this as a lower-bound estimate because it includes premature mortality but excludes morbidity and other effects of air pollution, including impacts on neurological development, worker productivity, crop yields, and visibility. Chakravarty and Somanathan (2021) estimate average air-pollution mortality damages from coal generation in India at 2.03 US cents/kWh, equivalent to ₹1.40/kWh using the authors’ 2018–19 exchange rate of ₹69 per USD. A reasonable conservative estimate is therefore that premature-mortality damages alone add roughly ₹1/kWh to the social cost of coal generation in India, with total local air-pollution damages likely higher.

Would it create significant import dependence on China and how to mitigate those risks?

One common criticism of renewable energy plus storage systems is their dependence on Chinese imports, particularly for battery cells. While India has developed a robust solar panel manufacturing base, its battery manufacturing and supply chains remain underdeveloped, and the country is indeed heavily reliant on China. But the relevant question is not simply whether that dependence exists. It is more nuanced such as how large the exposure is, where in the value chain it lies, how much leverage does China have etc.

First, India’s import dependence is concentrated in battery cells. Battery-cell prices have fallen dramatically over the past decade (from roughly \$400–500/kWh in 2015 to around \$50/kWh in 2025) due to the technological progress, manufacturing scale, and substantial excess production capacity in China. As a result, battery cells now account for only about 15-20% of the upfront capital investment in a firm clean-power project (Paliwal et al., 2026).

Their share is even smaller when measured against the project’s full lifecycle cost. Imported cells account for only about 10% of total lifecycle costs. Financing, domestically produced solar equipment, labour, construction, and other storage-system components and services account for the remaining roughly 90%, much of which represents domestic value creation. For example, of the thermal-mimic auction price of Rs 5.25/kWh, the imported-cell component would be only about Rs 0.5/kWh or so. The macroeconomic exposure is thus modest relative to the economic gains.

Second, dependence on imported batteries is different from dependence on imported fuels like coal, oil, or gas. Fuels are consumptive and must be continuously replenished. If supply stops, electricity production can stop. A battery is a capital asset that operates for many years. A disruption in cell imports would affect the construction of new projects, not the operation of existing ones. This significantly reduces the leverage of exporting countries and gives India time to find alternative suppliers, expand domestic production, or modify deployment plans.

The main security risks arise from the electronics and software surrounding the cell. India can import cells while retaining domestic control over pack assembly, inverters, battery-management systems, energy-management systems, firmware, communications, operational data, and remote access. It should also build recycling capacity and maintain some domestic cell manufacturing, as it has sought to do with solar equipment.

What are the implications? What more needs to be done?

First, governments and utilities should not commit to large fleets of new coal and gas plants without allowing renewables and storage to compete against the same performance requirements. This does not imply that renewables and storage will win in every location or for every operating profile. It means that the presumption in favour of coal and gas is no longer justified. All-source competition should determine which portfolio can provide the required reliability at the lowest cost.

Second, this competition must compare full costs. A fixed-price contract has value when fossil-fuel costs are exposed to inflation. Modularity has value because utilities can procure capacity in smaller increments as demand emerges, reducing the risks of overbuilding and underbuilding. Short lead times also have value when demand is growing but uncertain. Environmental damage should be priced rather than treated as free. Utilities should specify the quantity, operating profile, and commissioning date they require. Any resource that meets these requirements at the lowest total cost should win.

Third, these changes weaken the case for monopoly utility procurement. Large, slow, and scale-intensive power plants once favoured centralised planning and a single buyer backed by a distribution monopoly. Firm, round-the-clock power can now be assembled from modular solar and storage projects with much shorter lead times. The wires network remains a natural monopoly because duplicating distribution infrastructure is wasteful. Power generation, procurement, and retail supply do not require the same monopoly. Competitive suppliers can buy and sell power, while distribution utilities operate the network, provide last-resort service, and protect small and vulnerable consumers. ERCOT shows that competitive markets can support rapid investment in renewables and storage, although its design cannot simply be copied. Prayas (Energy Group) has outlined pathways for India, while proposed amendments to the Electricity Act also point towards greater competition. In the United States, PJM and CAISO should examine which elements of the ERCOT model, including faster interconnection and stronger market signals, can be adapted to their systems. GridLab’s recent work provides one such pathway. A wires-focused utility may also become financially stronger as electrification expands demand for network services.

Fourth, the gains from low-cost clean power extend far beyond the electricity sector. Time-varying prices can encourage flexible consumers to use electricity when clean supply is abundant and inexpensive. This can make industrial heat, hydrogen, steel, aluminium, transport, and other activities cheaper to electrify or decarbonise. Power-market reform is therefore not merely an electricity-sector reform. It can provide the foundation for lower-cost industrialisation and a cleaner economy.

References

Assam Electricity Regulatory Commission (AERC) (2025). Order dated 22 October 2025 on procurement of 3,200 MW of coal-based thermal power by APDCL. Tariff approval for the Assam thermal-power procurement cited in Figure 3. Cited in MPERC, Order in Petition No. 121/2025, paragraph 73.

Bihar Electricity Regulatory Commission (BERC) (2025). Order in Case No. 36/2025: Adoption of tariff for long-term procurement from the 2,400 MW Pirpainti Thermal Power Station. Final order, 27 August. Patna: BERC.

Chakravarty, S., and E. Somanathan (2021). There is no economic case for new coal plants in India. World Development Perspectives, 24, 100373. DOI: 10.1016/j.wdp.2021.100373.

Chojkiewicz, E., N. Abhyankar, U. Paliwal, and A. Phadke (2025). Declining costs make solar plus storage economical for industrial captive power. iScience, 28(11), 113763. DOI: 10.1016/j.isci.2025.113763.

Cropper, M., R. Cui, S. Guttikunda, N. Hultman, P. Jawahar, Y. Park, X. Yao, and X.-P. Song (2021). The mortality impacts of current and planned coal-fired power plants in India. Proceedings of the National Academy of Sciences, 118(5), e2017936118. DOI: 10.1073/pnas.2017936118.

International Energy Agency (IEA) (2026). Technology: Solar PV and wind. In Global Energy Review 2026. Paris: IEA.

International Renewable Energy Agency (IRENA) (2026). 24/7 renewables: The economics of firm solar and wind. Abu Dhabi: IRENA, May.

Madhya Pradesh Electricity Regulatory Commission (MPERC) (2025). Order in Petition No. 121/2025: Adoption of tariff for long-term procurement of 3,200 MW plus 800 MW under the greenshoe option from new power stations in Madhya Pradesh. Final order, 15 December. Bhopal: MPERC.

NTPC Limited (various years). Annual reports. FY2012-FY2026 editions cited in Figure 3 for standalone average realised tariffs. Report collection.

Paliwal, U., N. Abhyankar, and A. Phadke (2026). Closing the Credibility Gap: Solar-Plus-Storage Delivers Coal-Equivalent Reliability at Lower Cost in India. Working paper, March. India Energy and Climate Center, Goldman School of Public Policy, University of California, Berkeley.

Paliwal, U., A. Phadke, and N. Abhyankar (2026). India's Renewable Energy Breakthrough: Coal-Like Reliability at a Lower Fixed Price. Working paper, August. India Energy and Climate Center, University of California, Berkeley.

Power Finance Corporation (PFC) (various years). Report on Performance of Power Utilities. 2009-10 to 2024-25.

Ricke, K., L. Drouet, K. Caldeira, and M. Tavoni (2018). Country-level social cost of carbon. Nature Climate Change, 8, 895-900. DOI: 10.1038/s41558-018-0282-y.

Solar Energy Corporation of India (SECI) (2026). Request for selection: 1,000 MW firm and dispatchable renewable energy round-the-clock power (SECI-FDRE-RTC-V). Tender SECI000240; SECI/C&P/IPP/13/0020/25-26, 10 March, with amendments.

Uttar Pradesh Electricity Regulatory Commission (UPERC) (2026). Order in Petition No. 2228/2025: Approval of the power supply agreement and adoption of tariff for procurement of 1,500 MW from Mirzapur Thermal Energy (UP) Private Limited. Final order, January. Lucknow: UPERC.

Vijay, R., and R. Tongia (2026). Electricity Storage is Getting Quite Cheap - But Firmer Storage Isn't as Cheap as Sometimes Believed. Centre for Social and Economic Progress (CSEP), 7 September.

West Bengal Electricity Regulatory Commission (WBERC) (2025). Order in Case No. OA-513/24-25: Adoption of competitively discovered tariff for 1,492 MW contracted capacity from a new 2 x 800 MW greenfield thermal power plant. Order, 28 May. Kolkata: WBERC.

The authors are researchers at India Energy and Climate Center, University of California, Berkeley

Regulating the regulators: Assessing regulation-making frameworks in India's financial sector

by Natasha Aggarwal and Renuka Sane.

Indian regulators, like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), routinely wield quasi-legislative powers. For example, Section 30 of the Securities and Exchange Board of India Act, 1992 empowers the SEBI Board to make regulations. According to its 2024-25 annual report, SEBI issued 104 consultation papers, 61 amendments to its regulations, one new set of regulations, 14 master circulars, and 154 "policy measures." Such regulatory interventions can significantly influence markets and affect economic outcomes. Yet the processes by which regulators design, consult on, and review delegated legislation have been fragmented and, in large part, left to each regulator's discretion.

Traditional safeguards on delegated legislation in India, i.e., parent statutes requiring regulations to be laid before Parliament, prior publication requirements under the General Clauses Act, 1897, and judicial review, provide important accountability functions, but do not regulate the internal process by which a regulator formulates its regulations. They do not require a regulator to identify the problem warranting intervention, weigh alternatives, or assess costs and benefits.

In 2013, the Financial Sector Legislative Reforms Commission proposed provisions to govern regulation-making and, through the Financial Sector Development Council Resolution of 24 October 2013, financial sector regulators agreed to comply with these procedures. Since then, six financial sector regulators (the Insurance Regulatory and Development Authority of India (IRDAI), Insolvency and Bankruptcy Board of India (IBBI), International Financial Services Centres Authority (IFSCA), Pension Fund Regulatory and Development Authority (PFRDA), SEBI and RBI) have each adopted some form of instrument governing how they make regulations, ranging from non-binding concept notes to regulations. More recently, the Economic Survey (2024-25) recommended strengthening regulatory impact assessment; the Securities Markets Code, 2025 proposes statutorily mandating public consultation and periodic review at SEBI; and in March 2026 the Standing Committee on Finance recommended a mandatory regulatory impact assessment framework for the IBBI.

In this backdrop, our paper, 'Regulating the regulators: Assessing regulation-making frameworks in India's financial sector', evaluates the regulation-making frameworks adopted by these six regulators against three principles of good regulation-making - consultation, evidence-based regulation-making, and periodic review - and then assesses a randomly selected 2025 consultation paper issued by each regulator against indicators derived from these principles and from each regulator's own framework.

We find that while all six financial regulators have adopted some form of instrument, these instruments vary considerably in legal form, substantive scope, and analytical ambition. Regulators operating under more demanding frameworks are more likely to clearly identify the regulatory problem in their consultation documents. However, this relationship is not linear: stronger frameworks do not consistently produce stronger performance on more analytically demanding requirements. No regulator, including those whose frameworks expressly require it, included a cost-benefit analysis in its consultation paper, and no regulator assessed available alternatives to direct regulation. Every regulator failed to comply with at least one of its own procedural requirements.

Indian legal frameworks

From 2016 onwards, Indian regulators have progressively formalised how they make their own regulations: IRDAI led the way with a concept note in 2016, followed by IBBI in 2018, IFSCA in 2021, and PFRDA in 2024. In 2025, IFSCA issued an updated and expanded framework for making regulations and subsidiary instructions, SEBI adopted regulations for making, amending, and reviewing regulations, and RBI opted for a non-binding policy framework rather than enforceable regulations.

While all regulators now subject regulation-making to some framework, they diverge along two axes: legal form and substantive scope. On legal form, IBBI, PFRDA, IFSCA, and SEBI have adopted regulations, signalling a commitment to enforceable constraints; RBI and IRDAI, by contrast, have adopted non-binding approaches, suggesting either a desire to retain discretion or a reluctance to subject internal processes to enforceable standards. On scope, PFRDA's framework is narrowly confined to the making of regulations; IBBI, SEBI and IRDAI expand this to include amendments; IFSCA moves further by bringing "subsidiary instructions" within its fold; and RBI adopts the broadest scope, extending its framework to directions, guidelines, notifications, and other instruments. In this context, IFSCA stands out as the strongest: it uses binding regulations, rather than non-binding frameworks, to govern its regulation-making process, and their applicability extends beyond regulations and amendments to subsidiary instructions.

On consultation specifically, most regulators (IRDAI, IFSCA, SEBI, RBI and IBBI) make public consultation mandatory, typically for a minimum of 21 days; PFRDA alone makes it optional, albeit with a longer 30-day window. IRDAI, IFSCA, IBBI and PFRDA publish stakeholder comments and provide responses to them, while SEBI and RBI provide responses but do not publish comments, limiting external visibility into the range of views considered.

On evidence-based regulation-making, the picture is fragmented: IRDAI and IFSCA require both a problem statement and a statement of regulatory intent; SEBI requires only regulatory intent; PFRDA and IBBI require a problem statement but not regulatory intent. Only RBI's framework requires an impact assessment, and only PFRDA and IBBI mandate cost-benefit analysis.

On periodic review, IBBI has the most frequent cycle (three years), followed by IFSCA (five years) and RBI (five to seven years); SEBI and PFRDA require review but specify no timeline, and IRDAI's concept note is silent on review altogether.

Evaluation of consultation papers

We evaluated one randomly selected 2025 consultation paper (for IRDAI, an exposure draft) issued by each regulator, against indicators drawn from the principles of good regulation-making and from each regulator's own framework. Notably, the RBI did not issue a formal consultation paper in the relevant period; the document evaluated for RBI is a circular proposing amendments to its directions, reflecting a broader pattern of the RBI using directions and circulars to make substantive regulatory changes.

The IRDAI Exposure Draft states the objective of its proposal and describes the key features of the framework, but does not clearly explain the problem it seeks to address, does not consider alternative approaches to regulation, and does not include a cost-benefit or impact analysis.

The IBBI Discussion Paper, for each of its three proposals, includes a statement of the problem, a proposed solution, and the draft regulation, but does not identify and assess available alternatives to direct regulation, does not include a cost-benefit analysis, and does not comply with the IBBI Regulations' requirement of an economic analysis, guidance from international standard-setting bodies, or the statutory provision enabling the proposed regulations.

The IFSCA Consultation Paper does not comply with any of the principles of good regulation-making, other than relying on market data as evidence of growth; it refers to fund management entities facing unspecified "operational hassles" without elaborating on what these are, and does not specify the statutory provision enabling the amendments or include guidance from international standard-setting bodies, both required under its own regulations.

The PFRDA Consultation Paper performs comparatively better: it identifies the problem to be addressed, assesses how existing frameworks contribute to the problem, and relies on evidence. However, it does not identify and assess available alternatives to direct regulation or include a cost-benefit analysis, and does not comply with several of its own regulations; it does not specify the statutory provision enabling the proposed regulations, attach a draft of the proposed regulations, include the required economic analysis, include guidance from international standard-setting bodies, or specify the manner of implementation.

The SEBI Consultation Paper does not comply with any of the principles of good regulation-making other than identifying the problem to be addressed; it does not assess how existing regulations contribute to the problem, identify alternatives, or include a cost-benefit analysis, an outcome that closely mirrors the design of SEBI's own framework, which requires only a statement of regulatory intent.

The RBI Circular likewise does not comply with any of the principles other than a rather broad articulation of the problem, and does not comply with the RBI Policy because it does not specify the statutory provision enabling the proposed regulations, or include an impact analysis or guidance from international standard-setting bodies.

Analysis

The results reveal a gap between the formal existence of regulation-making frameworks and their actual operationalisation in consultation documents. There are failures at two levels: compliance with general principles of good regulation-making and compliance with each regulator's own procedural requirements.

More broadly, regulators operating under more developed procedural frameworks, particularly IBBI and PFRDA, which explicitly require problem identification, perform better on basic problem-definition indicators. Both clearly identify the regulatory problem, and PFRDA goes further by examining whether existing regulations contribute to it. In contrast, SEBI and RBI, whose frameworks impose minimal analytical obligations, produce consultation documents that are largely limited to statements of regulatory intent, with little substantive justification. Second, there is inconsistent articulation of the regulatory problem, even at a basic level. While some regulators - such as IBBI, PFRDA, SEBI, and RBI - identify a problem, others (notably IRDAI and IFSCA) fail to do so clearly. Even where a problem is identified, it is often thinly specified and not linked to evidence or to failures in the existing regulatory framework.

However, stronger frameworks do not necessarily translate into stronger performance on more analytically demanding requirements. Despite formal mandates, both IBBI and PFRDA fail to include the economic analysis required by their own regulations. IBBI omits cost benefit analysis, while PFRDA fails to provide economic analysis, draft regulations, international benchmarking, and implementation details. No regulator assesses alternatives to direct regulation or conducts a cost benefit analysis. The absence is uniform and not explained by framework design alone: even regulators whose own frameworks require economic analysis (IBBI, PFRDA, and RBI) fail to provide it. Their universal absence suggests that regulators do not treat regulation as one option among many, but as the default response. As a result, consultation processes are narrowed: stakeholders are invited to comment on how to regulate, but not whether regulation is justified in the first place. This significantly weakens accountability and the quality of regulation-making.

Moreover, every regulator, without exception, fails to comply with at least one of its own procedural requirements. The most consistent gap is the failure to specify the statutory provision enabling the proposed regulation - a basic transparency requirement met only by IRDAI. This omission raises concerns about the legal legitimacy of the proposed regulation, as stakeholders are not informed of the source of regulatory authority. IBBI omits the economic analysis mandated by its framework. PFRDA fails to include draft regulations, economic analysis, implementation guidance, and international benchmarks. IFSCA omits both the problem statement and international benchmarks required under its framework. RBI, similarly, does not provide the impact analysis or international benchmarking contemplated by its policy. These are not merely formal deficiencies. The absence of draft regulatory text, as in the case of PFRDA, prevents stakeholders from engaging with the legal substance of the proposal, limiting consultation to broad regulatory intent. The absence of economic or impact analysis means that the regulatory choice cannot be independently assessed.

Across all six regulators, consultation papers ostensibly function as instruments for presenting pre-determined regulatory proposals, rather than as vehicles for reasoned, evidence-based decision-making.

Reforms

We propose five reforms: (i) legislative amendments to parent statutes that clearly define the scope of regulators' quasi-legislative powers and the processes governing their exercise; (ii) regulatory impact assessment should be made mandatory and comprehensive; all consultation papers should be required to identify the problem or market failure to be addressed, assess whether existing regulations contribute to it, consider available alternatives including non-intervention, and include a cost-benefit analysis; (iii) constituting Regulations Advisory Committees of domain experts, legal scholars and market participants at all regulators; (iv) requiring periodic review of regulations at defined intervals with a clear methodology specifying which regulations are to be reviewed, against what criteria, and within what timeframe; and (v) leveraging technology (for instance, dashboards tracking active consultations and regulators' responses, and automated tools that flag missing elements in consultation papers before publication).

The authors are researchers at TrustBridge Rule of Law Foundation.