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Saturday, May 14, 2022

Consumer Grievance Redress in Indian Financial Markets

by Vimal Balasubramaniam, Renuka Sane and Srishti Sharma.

Consumer financial protection, the world over, has become a core function for regulators in financial markets. One aspect of consumer protection regulation is handling customer complaints. Analysing consumer complaints is important to not only evaluate the functioning of the consumer complaints mechanism, but also because it provides useful feedback for policy. All financial regulators in India mention consumer protection in their regulations, and have some mechanisms for consumer grievance redress and enforcement. However, systematic evidence on the grievances consumers face, and how the complaints mechanism responds to the complaints is missing. There is no work thus far that also maps actual incidence of grievances to those observed by the regulatory system --an important metric for policy and institutional design for grievance redress.

In a new working paper, Consumer Grievance Redress in Indian Financial Markets, we offer the first systematic evidence through a representative survey in the National Capital Region (NCR) region in India, on the extent of grievances in retail financial markets and how much the formal complaint mechanism actually misses. We also offer evidence on the type of grievances, and the reasons people don't complain. Our results suggest the following:

  1. Official estimates of complaints under-report total grievances by 60-80 times. That is for every complaint on banking and payments that makes it to the regulatory system, there are 60 grievances that do not get reported. For every official complaint on insurance there are 88 complaints that do not get recorded.

  2. Grievances in banking and payment mostly pertain to "transaction issues" such as delays in payments, and technology malfunction. Grievances in insurance, however, often pertain to "non transaction issues" such as mis-selling and fraud.

  3. When presented with hypothetical scenarios most respondents say they would lodge a complaint. However, in reality, very few of them do. This suggests that there are a number of frictions in the process - ranging from limited information about the process, to limited faith that a resolution is even possible.

  4. Those in vulnerable groups (with low education and low assets) are less likely to voice their complaints, and more likely to not have enough information about the redress procedure.

We hope these results provide inputs to the design of grievance redress mechanisms in financial markets in India. In order to sustain participation in, and enable the efficient use of financial markets by households, a two-fold approach is required. First, there is a need for generating meaningful data on consumer experiences with financial products, and grievance redress frameworks while they interact with retail financial products and sales practices. This will enable an understanding of how the current system works, and whether it can be scaled from a banked population of 300 million it currently serves to over a billion Indians it will be expected to serve. Second, there is a need for a contextualised learning of what the principles and design of a grievance redress system that needs to cater to more than a billion Indians ought to look like. Our research is a step in this direction.

Renuka Sane and Srishti Sharma are researchers at NIPFP. Vimal Balasubramaniam is a researcher at Queen Mary University, London.

Tuesday, May 03, 2022


Call for Papers: Field Workshop on Household Finance

25th June, 2022

XKDR FORUM and DVARA RESEARCH FOUNDATION invite submissions for a one day workshop which is being planned for June 25, 2022. The workshop will feature three research papers and one panel discussion. The workshop aims to cover presentations and discussions across the following set of research topics:

  • Household portfolio choice
  • Access to credit
  • Personal insolvency
  • Financial inclusion
  • Impact of payments and fintech
  • Consumer protection in retail finance
  • Regulation of retail financial markets

Preliminary versions of the paper may be considered provided that the research question is clearly outlined along with preliminary results.

Please send in your submissions before May 25, 2022. Selection decisions will be announced by June 6th, 2022. For further queries and submissions, write to

Tuesday, April 19, 2022

Implications of free transmission of renewable energy

by Akshay Jaitly and Ajay Shah.

Inter-state electricity transmission

Transporting electricity across long distances requires investments in the transmission system where high voltages are used to minimise losses. An emphasis on renewable electricity generation requires significant new transmission capacity to transport electricity from the natural locations for generation (e.g. Himalayan hydel, or SPV in Rajasthan) to the centres of consumption in the peninsula. In an announcement in December 2021, 23 inter-state transmission system (ISTS) projects have been initiated by the government, at a cost of Rs.159 billion.

As with other elements of the electricity system, investments in transmission would ideally be done through the price system, where the price for transmission is discovered on a market. Once the price system is in motion, present or anticipated high prices would create incentives for investment in transmission. The structure of the Indian electricity market does not permit this: as this announcement of 23 projects shows, we effectively have a centrally planned system where officials control the resource allocation, and only bring in private firms as vendors playing a defined role in a centrally planned system. Transmission investments and prices are largely government controlled, and not discovered through the price system, which always involves misallocation of resources.

In the remainder of this article, we discuss the outlook on ISTS and its implications for renewable energy. To summarise ISTS, it is an electricity grid that runs across the entire country. It connects to end-points who are either generators or users. There is a process, and there are rules and capacity constraints, which determine whether a given person gets on to ISTS. Once a person is physically on ISTS, they are directly buying and selling from others on ISTS; these transactions are immune to the policies of the local discom. There is one constraint: the buyer and seller on ISTS cannot be within the same state.

Special prices for transmission of renewables

The CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2010 had some remarkable clauses: 7(u) and 7(v) established that for a period of three years, solar generation would be charged zero rates for transmission charges or losses. This suggested a world where a solar generator could sell to any buyer in India with no friction from transportation. These zero charges have been expanded and carried forward to cover all renewable energy commissioned till 30 June 2025. For renewable energy projects commissioned prior to 30 June 2025, for a period of 25 years, there will be no charge for transmission. For projects commissioned from 30 June 2025 onwards, the charges come back in gradually, to a level of 100% of the normal charge for projects commissioned after 1 July 2028. This creates a special deal for any renewables project that gets to the finish date by 30 June 2025.

Open access through discoms: In the present legal system, discoms are supposed to give out ‘open access’, where a buyer and seller of electricity are able to privately negotiate transactions, and have guaranteed access to the transportation services of the discom for the transport or electricity within or outside the state. In practice, this de jure situation does not map out into the de facto: many discoms refuse to provide or otherwise impede these services, as they would like to continue overcharging their best customers.

Open access through ISTS: Transmission across the state border through the ISTS seems to offer an increasingly viable way out of this barrier. It appears that when a renewables generator connected to the ISTS network sells to a third party outside the state who is also connected to the ISTS network through a PPA, neither of the two discoms can impede the transaction. This has been possible for a while, but the expansion of ISTS mentioned above will make such transactions more accessible to a wider range of sellers and buyers.

We could thus have generator $A$ in Dahanu (at the north end of Maharashtra) who is unable to sell to a buyer $B$ in Palghar (40 kilometres away), but she would be able to sell to a buyer $C$ who is across the state border in Vapi (at the south end of Gujarat, 70 kilometres away), assuming that connectivity to ISTS exists.


There are two kinds of ‘free’ in the title of this article. One refers to transportation of electricity without paying for it. Another refers to economic freedom: rational transactions under open access which are impeded and disincentivised within and across states (between a renewables generator and a buyer) and those using ISTS that are seemingly encouraged across the state border. What are the implications of these two kinds of free coming together?

There is no free lunch. When transportation is subsidised for renewables, someone has to pay for this. This can either be an explicit on-budget subsidy, or it can be a within-sector subsidy. In the Indian case, when government-owned transmission utilities undercharge transmission for renewables, this comes with higher prices for fossil fuel generators. Such tax-and-subsidy policies normally require sophisticated public finance analysis, which is not visible, thereby elevating the risk of unanticipated effects.

The ability of renewables generators to frictionlessly transport electricity across state borders is likely to significantly impact upon the distorted pricing being run by discoms. The paying customers (C&I) in any state have a strong incentive to cut the discom out of the transaction and directly buy from any generator. In addition, some C&I customers have ESG equity investors, and need to demonstrate they are using renewable energy. Both imperatives create incentives for C&I customers in each state to find a renewables generator somewhere in India (but not in their own state, where ISTS transactions are absent), and buy directly, thus avoiding the exaggerated prices charged by the discom and freeing themselves from their often unreliable service.

We will have situations where a Gujarat renewables generator will sell to a Maharashtra C&I customer, while at the same time a Maharashtra renewables generator will sell to a Gujarat C&I customer. At an engineering level, transmission between two states would only take place in one direction, and the two streams would get netted out. This would yield the efficient outcome where in each state, buyers and sellers achieve higher economic freedom, and are less controlled by the discom.

Zero or low pricing for transmission of renewables has been around for a while, but earlier there were capacity constraints in inter-state transmission which was holding back this process. The substantial expansion of the ISTS described above would help translate the threat of exit by an increasing number of C&I users into a reality. The rise of ESG investment is also relatively recent. We would hence hazard a guess that these transactions will become more important by 2023 and 2024.

In a recent paper, we argued that the Indian electricity sector in 2021 or 2022 is different from what was seen in the preceding 30 years. While electricity went along a muddled path of non-reform for decades, while private participation only came into the edges of a fundamentally centrally planned system, the stress on the incumbent system is mounting. We are coming to the point where the good old ways are untenable. Inexpensive ISTS, which enables C&I customers to buy cheap renewables from across the state border, adds to this scenario. Other recent developments are also pushing discom finances over the edge [example].

We expect that increased ISTS access will increase economic freedom, and help private investors think more in terms of market opportunities rather than regulatory constraints. But this present moment of the policy configuration will also not be seen as stable, for a 25-year horizon, by private investors. What the state giveth, it can equally take away. All in all, we expect that discom finances will weaken, the ROE in renewables will go up, but the impact upon investment will be somewhat muted owing to fears about the next string of policy actions.

Wednesday, March 30, 2022

Energy transition investment in India and in the world

by Akshay Jaitly and Ajay Shah.

At a time when the 20th century has returned, in terms of geopolitical conflicts, we should not take our eyes off the climate change problem. CO2 is a global pollutant, and it will be harder than ever to get the world economy to safety, so we will need to make more of an effort.

Measuring energy transition investment in 2021

BloombergNEF builds an important annual statistical picture in the `Energy Transition Investment Trends' report. The 2022 report measures global investments into the carbon transition. They break this down into two groups: the direct energy transition investments, and the investments in R&D for improved technology.

The headline numbers for 2021 are that there was \$755 billion of energy transition investment and \$165 billion in technology development, adding up to \$920 billion. Under `energy transition investment', the sub-components that are tracked by BloombergNEF are (a) Renewable energy; (b) Energy storage; (c) Electrified transport; (d) Electrified heat; (e) Nuclear; (f) Hydrogen; (g) CCS and (h) Sustainable materials.

For the Indian economy, it is largely a story of learning, purchasing and implementing the technology developed elsewhere in the world. As an example, many people all over the world invested in, and took the steps on the journey to, cheap solar photovoltaics. We in India are the beneficiaries by being able to buy solar panels or the machines that make solar panels, without needing to invest risk capital in developing the technology. We also can do M&A, like Reliance Industries’ buyout of solar cell and panel manufacturer REC Solar Holdings for \$771 million in late 2021. Hence, for the remainder of this article we focus on the \$755 billion of energy transition investments (worldwide) in 2021.

The big facts

Of the \$755 billion, there are two large components -- \$366 billion into renewable energy and \$273 billion into electrified transport. But there are also many other things going on (energy storage, electrified heat, nuclear, hydrogen, CCS, sustainable materials), adding up to the remaining \$116 billion.

Investment into the energy transition has grown well. A decade ago, this was at \$264 billion, thus giving an average compound growth of 11% per year in USD.

The report estimates that to get to net zero, these numbers need to triple to 2025 and then double to 2030. Overall, a six-fold rise is required from 2021 to 2030.

The values seen in India

Energy transition investment in 2021 in China was at \$266 billion (out of the total of \$755 billion), and in India it was \$14 billion. The Chinese GDP is about five times larger than India, but their investment in the energy transition last year was 19 times larger than India's.

If we apply the Indian share in world GDP of 3%, the value of Indian energy transition investments should be at \$23 billion. If we relate this to the Indian share in world CO2 emissions of 7%, this should be at \$53 billion. By these two normative yardsticks, then, energy transition investment in India needs to be 1.6 or 3.8 times bigger than it is.

What impedes the energy transition in India?

If we multiply the present value of \$14 billion a year by 6 x 1.6 or 6 x 3.8, we get to the estimated required investment in India for 2030 of \$134 billion or \$319 billion. Such values cannot be obtained from the fiscally stressed Indian exchequer. They can only be obtained from the private sector. But the private sector is still skeptical about energy investment in India (as is evidenced by the relatively low value of \$14 billion in 2021).

The present policy frameworks for the sectors that receive energy transition investments have been in place for decades. Intensification of these frameworks, or better implementation of the present policy paradigm, is unlikely to shift the needle sufficiently. For instance, persisting along this path will mean that electricity in India will continue to be unreliable, expensive and carbon-intensive.

When we look at the landscape of \$755 billion of investment in 2021, it is not, China apart, taking place in a world of central planning; it is in a world in which the government sets up the foundations through which the price system operates, and then the precise decisions about technology and business model are made locally by private persons. This is the key transformation that is required in India. The decision to put up a solar plant or build an electrolyser should be made by an individual looking at the prospective profit, not a government official who puts out a tender. The decision to put up a storage facility should be made by a private person who sees opportunities in a large gap between the highest price of the day and the lowest price of the day.

As we argue in a recent paper, the problems of the Indian climate transition are now beyond the calibrated control of officials. The government controlled system is experiencing substantial stress, owing to the contradictions inherent in it. A centrally planned system is ill equipped to think about technical and business model problems in each square kilometre of India. Government control will tend to push simplistic solutions that will drive up the cost imposed upon society for the energy transition.

Tuesday, March 29, 2022

How competitive is bidding in infrastructure public procurement? A study of road and water projects in five Indian states

by Charmi Mehta and Diya Uday.


Competition is central to the functioning of a market economy. Market power is a market failure, and governments around the world work hard to fight anti-competitive behaviour and market capture by firms. When competitive pressure is lacking, firms fail to achieve efficiency in production.

An efficient system for government procurement is one where the government obtains purchases for the lowest possible price. In the international literature, studies have shown the linkage between higher competition and lower procurement prices (Estache et al. 2008; Hanak and Muvchova 2015), greater efficiency (Adam et al. 2021) and a lower rate of corruption and kickbacks (Knack et al. 2017).

It is difficult to make normative claims about what is the adequate level of competition. Economists have emphasised contestability of a market as the underlying source of efficiency; simple proxies like concentration ratios do not correctly evoke the level of competition. Researchers in the field of competition levels in government contracting have used the number of bids received for a tender as an empirical measure.

There is some international evidence from developing countries about the desirable numbers of bidders in infrastructure public procurement. There are thumb rules, such as desiring eight-or-more bidders for a roads contract (Gupta 2002, Estache et al. 2008) or seven-or-more for water projects (Estache et al. 2008). These normative numerical values would of course, not readily carry forward across locales, but we use them cautiously in the present work.

In the field of government contracting in India, there is anecdotal evidence of anti-competitive behaviour in the market with reports of bid-rigging and collusion. In this article, we aim to step up from this to some statistical evidence. We ask: How much competition do we see in Indian infrastructure procurement? How does this vary across states and sub-sectors?


We hand-construct a novel data-set with a sample of tenders from five states: Tamil Nadu, Odisha, Maharashtra, Uttar Pradesh and Kerala. This choice of states was shaped by the levels of spending on infrastructure, geographical heterogeneity, and data availability. We extracted data from 1000 randomly sampled, awarded e-tenders published by state governments on the Central Public Procurement Portal (CPPP) in the water and roads sector for 2018 and 2019.

CPPP is a centralised repository of tender data at the union and state level. Procuring entities across union and state tiers are obliged to publish their tenders on the portal. We use data solely from this portal to ensure consistency in variables and recording. The data-set includes:

  1. States in the sample: Kerala, Maharashtra, Odisha, Tamil Nadu, Uttar Pradesh
  2. Sectors covered: roads, water
  3. Years covered: 2018, 2019
  4. Total sample size for each sector: 500 tenders
  5. Key words used while searching through the CPPP to select tenders: "road", "water".

We extract the number of bids received for each tender in order to examine the level of competition.

In the research literature, it is argued that three factors shape competition in public procurement:

The value of the contract
Larger contract sizes require greater capital and expertise, which act as an entry barrier for small/mid-size players in the market (Estache et al. 2009; McEvoy 2020).
Structure of the tender
Bundled tenders, where multiple works of different types are bundled into a single tender document, restrict competition to only those firms that can undertake the varied components of bundled tender (Estache et al. 2009). Dividing contracts into smaller lots bolsters MSME participation and thus competition (Hoekman et al. 2022).
Time taken to award contracts
Lengthy award schedules require participating firms to lock-in capital and resources for the bid amidst the uncertainty of winning the bid; this adversely impacts private sector enthusiasm towards bidding (World Bank 2020).

We will examine the extent to which the number of bids per tender correlates with these features.


Table 1 summarises the statistics on the number of bids received across the five sample states for the years 2018 and 2019.

Table 1: Number of bids received in the infrastructure sector

In the Roads sector

2018 2019

Min Max Median Average Min Max Median Average
Maharashtra 1 4 3 3.26 1 11 3 3.94
Uttar Pradesh 1 11 3 4 2 9 3 3
Tamil Nadu 1 3 2 2 1 3 2 2.08
Kerala 1 8 2 2.08 1 7 2 1.80
Odisha 1 27 5 7 1 55 6 9.96

In the Water sector

2018 2019

Min Max Median Average Min Max Median Average
Maharashtra 1 34 3 5.56 1 17 3 4.17
Uttar Pradesh 1 8 3 3.04 1 16 3 4.05
Tamil Nadu 1 4 2 1 1 12 3 2
Kerala 1 5 2 2.08 1 5 3 2.28
Odisha 1 52 2 2.45 1 27 3 4
Source: Authors' compilation and calculation from CPPP data


Q.1. How competitive is infrastructure procurement?

We find that, with the exception of the road sector in Odisha, the level of competition in terms of the average number of firms bidding for the projects is lower than the normative thumb-rules from the literature. This holds across all states, sectors and years. Further, two features about the lack of competition in this data-set merits discussion:

  1. Tenders where bids satisfy the thumb-rules of the literature

    We examine the fraction of tenders in our sample that satisfy these thumb rules, and count the tenders that got more than seven bids in the water sector and eight bids in the roads sector. Table 2 summarises these results. Here, we see that the roads sector fares worse than the water sector.

    Table 2: Fraction of tenders that receive bids meeting normative thumb rules (share in per cent of tenders)

    Maharashtra Uttar Pradesh Tamil Nadu Odisha Kerala
    Roads 5 5 0 34 1
    Water 14 7 1 8 0
  2. Tenders that received only one bid and were awarded

    We find several awarded tenders that attracted only single bids. This is true even in states with relatively higher levels of competition such as Uttar Pradesh, Maharashtra and Odisha. But there are more tenders with single bid awards in the states with the lowest levels of competition, namely, Tamil Nadu and Kerala. We find that single bid awards are more prevalent in the water sector.

Table 3: Fraction of awarded tenders that received only one bid (% of tenders in the sample)

Maharashtra Uttar Pradesh Tamil Nadu Odisha Kerala
Roads 6 2 4 6 40
Water 8 6 52 8 21

Q.2. How do the findings vary across states and sectors?

The results are fairly consistent results across sectors and years. For instance, three states -- Uttar Pradesh, Maharashtra, and Odisha -- have higher levels of competition across both sectors when compared to the other observed states. Kerala and Tamil Nadu have lower levels of competition across both years for both sectors.

Q.3. What features of tenders correlate with a low number of bids?

In the literature, there has been interest in three features that may shape the level of competition: the value of the contract, the structure of the tender and the time taken to award contracts. In our data-set, however, these three factors do not correlate with the number of bidders.


This evidence suggests there is a low level of competition in public procurement, in two sectors and five states. There are some systematic patterns, where some states and sectors fare worse in getting competitive bidding than others.

Competitive conditions seem to be the feature of a given state. This suggests that there are some features in states like Kerala or Tamil Nadu, which are inhibiting competition, and can be addressed in a way that would impact on government purchases across sectors.

A large number of tenders with a single bid that get awarded are a curious phenomenon and merit further research. These tenders are awarded under the previous Central Vigilance Commission (CVC) guidelines, which require that state Public Works Departments (PWD) cancel tenders that receive single bids at the first instance. Single bids could be accepted only if the procuring entity received only one bid, even after re-tendering. However, the recent General Instructions on Procurement and Project Management, allows the acceptance of single bids under certain conditions. These include: (i) the procurement was satisfactorily advertised and sufficient time was given for bid submission; (ii) the qualification criteria was not unduly restrictive; and (iii) the price in the bid is reasonable in comparison to market values.

Further research is required in extending this kind of work to other sectors and locales, to assess the extent to which the lack of competition is a more general phenomenon in public procurement in India. The source of this lack of competition also merit exploration.

There are limitations in how state organisations do procurement (Mehta and Thomas 2021), including potential gaps in the capacity of implementing rules (Roy and Uday 2020), inefficiencies of processes and timelines (Roy and Sharma 2020), and delayed payment of invoices (Mannivanan and Zaveri 2021). Such problems could create an inhospitable environment for bidding firms, and deter many good firms from taking interest in state purchases. Well incentivised state actors should solve these problems. This raises questions about the feedback loops that impinge upon state actors.


Antonio Estache and Atsushi Iimi, (Un)bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects, Policy Research Working Paper No. 4854, World Bank, March 2009.

Antonio Estache and Atsushi Iimi, Procurement Efficiency for Infrastructure Development and Financial Needs Reassessed, Policy Research Working Paper No. 4662, World Bank, March 2008.

Bernard Hoekman and Bedri Taş, Policy and SME participation in public procurement, Vox EU - CEPR, 23 March 2022. 

Charmi Mehta and Susan Thomas, Lessons from the COVID-19 vaccine procurement of 2021, The LEAP Blog, 15 November 2021. 

Emma McEvoy, Small and Medium-Sized Enterprises (SME) Participation in Public Procurement, Maynooth University, 2020. 

Isabelle Adam , Alfredo Hernandez Sanchez and Mihály Fazekas, Global Public Procurement Open Competition Index, Government Transparency Institute, Working Paper Series: GTI-WP/2021:02, April 2021. 

Pavithra Mannivanan and Bhargavi Zaveri, How large is the payment delays problem in Indian public procurement?, The LEAP Blog, 22 March 2021. 

P. Manoj, Govt lifts the ‘fear’ on accepting single bids during public procurement tenders, The Hindu, 2 November 2021. 

Srabana Gupta, Competition and collusion in a government procurement auction market, Atlantic Economic Journal 30, 13–25, 2002. 

Shubho Roy and Anjali Sharma, What ails public procurement: an analysis of tender modifications in the pre-award process, The LEAP Blog, 26 November 2020. 

Shubho Roy and Diya Uday, Does India need a public procurement law?, The LEAP Blog, 19 August 2020. 

Stephen Knack, Nataliya Biletska and Kanishka Kacker, Deterring Kickbacks and Encouraging Entry in Public Procurement Markets : Evidence from Firm Surveys in 88 Developing Countries, World Bank Working Paper, May 2017. 

Tomáš Hanák and Petra Muchová, Impact of Competition on Prices in Public Sector Procurement, Procedia Computer Science, Volume 64, Pages 729-735, 2009. 

World Bank, Contracting with the government, World Bank Doing Business, 2020



Charmi Mehta and Diya Uday are CMI-XKDR Forum researchers. The authors thank Shailesh Phatak, Susan Thomas and Ajay Shah for their valuable inputs on this work; and Abhinav M from the Indian Institute of Human Settlements for his valuable research support.

Sunday, March 27, 2022

How did courts respond to the pandemic lockdowns: evidence from the NCLT

by Pavithra Manivannan, Susan Thomas and Bhargavi Zaveri-Shah


An important problem of the Indian state is the working of the judiciary, which is hampered by procedural frictions and delays. Several research papers measure the output of the judiciary in terms of number of cases disposed and the elapsed time from start to finish (DAKSH (2016), NALSAR (2016), Regy and Roy (2016), Datta et. al (2017), Tata Trust (2019), Vidhi Centre for Legal Policy (2021)). While recognising that the end objective of a sound judiciary is to decide cases correctly, these practical measures of the output of the judiciary are interesting in capturing what the judicial performance is at any point in time, as well as how it changes from one point to the next.

An example of such an episode is the COVID-19 pandemic. This event disrupted all economic and social processes in India, including the working of courts. Service organisations all over the world responded by building an all-digital workflow. With digital adaptations, many service organisations have matched upon pre-pandemic levels of output and productivity. We analyse the quarterly results of listed non-finance services firms for 2019, 2020 and 2021, for the April-May-June quarter. The total net sales of the firms was Rs.2.87 trillion, Rs.2.2 trillion and Rs.3 trillion. These firms had output in 2021 that was similar to that seen in 2019.

In case of the judiciary, the response included selecting urgent matters for hearing, as well as adopting e-filing and virtual hearings as the norm. How did the judiciary in India fare during the lockdowns that were put in place during the peak of the pandemic, once in 2020 and another in 2021?

Sharma and Zaveri (2020) examined the response of the Indian judiciary during the pandemic. They introduced an important innovation in the literature on court performance, by constructing a data-set of outputs based on cause-lists of the NCLT. They used this data-set to examine the relative output of the NCLT during the first pandemic lockdown (25 March 2020 to 30 June 2020) to the output in the pre-lockdown period in 2020 (1 February 2020 to 24 March 2020).

In this study, we carry this research agenda forward. We argue that a useful quantitative measure of output is the number of cases scheduled per day and cases disposed per day. We use this to examine the extent to which the output of the NCLT changed during their repeated exposure to pandemic triggered lockdown conditions. We examine these for three comparable periods in 2019, 2020 and 2021. In this, we recognise that the NCLT added courtrooms during the pandemic period of 2020, which can influence the NCLT output. We also recognise that the NCLT scheduled hearings only for urgent matters, and that the complexity of the matters scheduled can impact the number of disposals. We introduce a classification scheme of complexity of cases, and examine the extent to which the number of cases disposed responds to metrics of case complexity.


As with Sharma and Zaveri (2020), our data-set is constructed from the cause-lists of the NCLT. In this article, we measure the months of March, April and May for 2019, 2020 and 2021. We focus on the same three months in each year for two reasons: One, it controls for any variation that may arise due to seasonal factors, such as court vacations and festivals. Second, India saw the peak of the pandemic in these three months in both 2020 and 2021.

The daily cause-lists for each of these periods are available for 11 out of 15 benches of the NCLT. Our analysis is focused on those benches which consistently published cause-lists during each of these three periods. These were the benches of Cuttack, Jaipur, Kolkota, Mumbai and New Delhi (including the Principal bench). This data-set makes it possible to observe the number of cases scheduled on each day and the number of cases disposed. If the NCLT is viewed as a black box, its performance can be measured by the number of cases disposed. (As stated before, there is a quality dimension, which is not addressed in this quantitative research).

When the systems of the NCLT are augmented, whether by introducing additional courtrooms or technology and technology led processes, we expect a scaling up of the number of cases disposed per courtroom per day. In addition to the per day averages, we focus on hearings scheduled and disposals per courtroom per day to understand the extent to which this took place.

When the pandemic began and only urgent matters were scheduled, there could be a selection bias on the part of both plaintiffs and judges to emphasise important and urgent cases. This could generate an increase or decrease in the complexity of cases which, in turn, could impact the measured output of the court. In order to explore this problem, we construct a measure of complexity of cases. For this, we categorise each hearing under five heads: Insolvency and Bankruptcy Code (IBC), Oppression and Mismanagement (O & M) under the Companies Act (CA), Schemes, Strike off Appeals and Miscellaneous. We classify IBC and O & M matters as Complex and all the others as Simple. This allows us to examine the extent to which the observed changes in output have been influenced by a change in complexity.


Table 1: Average daily NCLT output

Period Hearings Disposals
Mar - May 2019 399 65
Mar - May 2020 149 30
Mar - May 2021 255 48

In 2019, NCLT scheduled 399 hearings per day and disposed 65 cases per day. Table 1 shows us that, in 2020, in the aftermath of the first extreme lockdown, the output of NCLT dropped both in terms of scheduled hearings (149) and disposed cases (30). It then partially increased in 2021 (255 hearings per day and 48 disposed cases per day). This demonstrates resilience in the NCLT capacity during the second wave, in 2021.

Some benches of the NCLT had a higher number of courtrooms in 2020 and 2021. For example, the number of courtrooms in New Delhi went from 4 in 2019 to 6 in 2020 and 2021. Similarly, in Mumbai, it increased from 3 in 2019 to 5 in 2020 and 2021. On the other hand, the courtrooms for the Kolkata, Cuttack and Jaipur benches remained constant during all three periods. Some of the increased outcomes in 2021 may be owed to the increased number of courtrooms.

In order to control for this feature, we focus on the average disposals per courtroom per day. Table 2 shows that there was a 66% decline from 2019 to 2020, and then a 50% rise in 2021. The final level – 3 disposals per courtroom per day – was half than seen before the pandemic, but better than during the first wave in 2020. This suggests that the addition of courtrooms alone did not significantly alter the output of the NCLT. Wide-scale adoption of technology such as video-conferencing facilities that enabled the NCLT to operate without exposing the members to the virus is likely to have contributed to these improvements in outcome.

Table 2: NCLT output, measured as the average per courtroom per day

Period Hearings Disposals
Mar - May 2019 36 6
Mar - May 2020 10 2
Mar - May 2021 17 3

NCLT hears matters of varying complexity. Time taken to dispose off a complex matter might be higher due to the procedures, technicalities and stages involved. The increased outcome in 2021 could have been achieved by NCLT by merely altering the scheduling proportion of complex v. simple cases. We examine whether such a selection bias contributed to higher disposals in 2021.

Table 3: The role of case complexity

Period Complex Complex Simple Simple

Hearings Disposal Hearings Disposal
Mar - May 2019 263 35 126 29
Mar - May 2020 102 13 44 16
Mar - May 2021 199 33 50 14

Table 3 shows that the proportion of complex vs. simple cases scheduled for a day, is greater in 2021 than in the pre-pandemic period 2019. In terms of disposal, in 2019, complex and simple cases disposed were of a similar order of magnitude (35 complex cases a day vs. 29 simple cases per day). In 2021, there is evidence of a greater proportion of complex cases being disposed off: 33 complex cases a day vs. 14 simple cases per day. This shift in the case load, in favour of more complex cases, would mean that the increased output of NCLT in 2021 is not out of scheduling larger fraction of simple cases. But this shift would ordinarily go with a reduction in output per courtroom per day, holding productivity constant.


The working of the judiciary has deep ramifications on the working of the economy which depends upon timely and just decisions on disputes. While the ultimate objective is that cases should be decided correctly, there is an emerging literature which emphasises quantitative measures of the output of courts. This is an interesting and important line of questioning, even without bringing in the analysis of the quality of court judgements, because it helps to identify and understand the response of the court to disruptions such as the COVID-19 pandemic.

The evidence here shows that NCLT was disposing 65 cases per day under pre-pandemic conditions. In the worst pandemic conditions in 2020, this output dropped to 30 cases disposed per day. Under similar conditions in 2021, output was higher at 48 cases disposed per day.

Did additional courtrooms that were added in 2020 help explain this rise? When output is measured per courtroom per day, there was a decline in 2020 to 2 cases per courtroom per day from a disposal of 6 cases per courtroom per day in 2019. The output went up to 3 cases disposed per courtroom per day in 2021. This is an improvement in the NCLT output, even if it is still at a level which is half of that seen under pre-pandemic conditions, and resulting productivity gain.

Was the output higher because the case mix emphasised more simple cases? This was not the case. On the contrary, there was a shift in favour of more complex cases. In our evidence, complex cases went up from 55% of disposals in 2019 to 70% in 2021. As these cases would be expected to require more time, this constitutes a partial explanation for the reduced output per courtroom seen in 2021 when compared with 2019.

A third factor is the technology and the digital processes adopted and refined by the NCLT after the strict lockdown imposed in 2020 was lifted. The evidence in our study shows that these new processes yielded the NCLT gains in 2021 when compared with 2020.

The Indian law fraternity is debating whether it would be beneficial to revert to physical functioning of courts as opposed to going further into the video environment (Press Trust of India, 2021). In our data, we see that, NCLT productivity was at 3 disposals per courtroom per day in pandemic environment of 2021, as compared with 6 disposals per courtroom per day in the pre-pandemic environment of 2019. These facts can help shape judgement about future possibilities.


DAKSH, Access to Justice Survey, Technical report 2016.

Pratik Datta, Surya Prakash B. S. and Renuka Sane, Understanding judicial delay at the Income Tax Appellate Tribunal in India, NIPFP Working Paper No. 208, October 2017

NALSAR University of Law, A study of court management techniques for improving the efficiency of subordinate courts, Technical report 2016.

Prasanth V. Regy and Shubho Roy, Understanding judicial delays in debt tribunals, NIPFP Working Paper No. 195, April 2017.

Tata Trust 2019, India Justice Report: Ranking states on police, judiciary, prison and legal aid, Technical report 2019.

Vidhi Centre for Legal Policy, The Delhi High Court Roster review: A step towards judicial performance evaluation, Technical report 2021.

Anjali Sharma and Bhargavi Zaveri (2020), Measuring court output in the pandemic: evidence from India’s largest commercial tribunal The LEAP blog, 11 September 2020.

Press Trust of India (2021), Continuance of courts virtually will be a problem’: SC on resuming physical hearing, Business Standard, 8 November 2021 at 


Pavithra Manivannan is a Research Associate and Susan Thomas is a Senior Research Fellow, both at XKDR Forum in Mumbai. Bhargavi Zaveri-Shah is a doctoral candidate at the National University of Singapore. We thank Pramod Rao, M. S. Sahoo, Ajay Shah, Anjali Sharma and Diya Uday for comments and suggestions.

Monday, March 21, 2022

History of disinvestment in India

by Sudipto Banerjee, Renuka Sane, Srishti Sharma and Karthik Suresh.

Disinvestment of public sector enterprises has been an important part of Indian economic policy since the 1990s. Research in this field has been constrained by a lack of foundations of facts. There is limited information on policy positions, policy actions, as well controversies around policy actions. For example, Baijal (2008) provides a history of early disinvestment decisions in India; Banerjee Sane and Sharma (2020) provide information on the more recent methods adopted for disinvestment; Banerjee, Moharir and Sane (2020) document disinvestments undertaken to meet the minimum public shareholding rule in India.

In a new working paper, History of disinvestment in India: 1991-2020, we contribute to the literature by documenting the history of disinvestment of Central Public Sector Enterprises (CPSEs) in India between March 1991 to December 2020. The paper is a collection of facts on:

  1. The policy position of governments across the years
  2. The policy processes adopted by governments on selection of enterprises for disinvestment
  3. The difficulties encountered in various transactions on (i) methods of valuation, (ii) legal disputes challenging the transactions, (iii) adverse audit remarks of the CAG, and (iv) labour unrest.
  4. Targets for disinvestment and amounts raised
  5. The different methods of disinvestment, especially those used in recent years such as compulsory buybacks, Offer for sale through the stock exchange (OFS-SE), CPSE to CPSE sales, Exchange Traded Funds (ETFs), and public offers.

We found it difficult to achieve this level of clarity on the facts, and hope that this helps many others approach the field with better foundations on facts.


Baijal, P. (2008), Disinvestment In India: I Lose and You Gain, Pearson; 1st edition.

Banerjee S., Moharir, S., and Sane R. (2020), The problem of minimum public shareholding in public sector enterprises , The Leap Blog, 18 November 2020.

Banerjee S., Sane R. and Sharma, S. (2020), The five paths of disinvestment in India , The Leap Blog, 7 July 2020.

Sunday, March 20, 2022

Economic stress in Russia

by Ajay Shah.

The Russian economy has faced a series of adverse shocks after the invasion of Ukraine:

  • Many de facto restrictions have emerged upon international trade,
  • Many foreign companies have chosen to pull out or restrict activities in Russia, spanning non-financial and financial firms,
  • Many individuals living in Russia have chosen to emigrate; these are likely to be high skill people.

We may think it is not hard for Russia to absorb these shocks. After all until 1991 it was the USSR, a land of central planning and autarky. We think they will just go back to those ways. However, the recent events are likely to impose substantial costs for the Russian economy.

Russia is no longer a centrally planned economy

It sounds funny, in today's world, to think of officials owning a target for exports, to think of officials making calculations about how much steel will be required in the light of what the five-year plan has envisaged for building railway lines. But that non-market mechanism for thinking and allocating resources did exist in the USSR (as it did in India).

That institutional capacity has been lost after 1991, and it cannot be quickly recreated. Now, Russia is a capitalist economy. The shocks will be dealt with by the price system in its usual ways.

Disruptions in the price system

Within the domain of the price system, trade and FDI have a deep influence upon the structure of production. Every modern economy involves millions of decisions about what to produce and how to produce. These decisions are made in a decentralised way, and millions of contracts are in place that govern the purchases and sales of each firm.

When 10% or 30% of these relationships are disrupted, it adds up to a storm in the economy. Yes, production can be reconfigured in a self-reliant way (and self-reliance will always induce greater poverty), but that takes time. There is a period of extremely volatile prices, of shortages, where every firm is cautiously waiting for the dust to settle before establishing a new set of self-reliant contracts. Millions of negotiations have to take place, to get a new set of production relationships going. There is a learning process where some contracts fall into place, and then prices change, and then once again some contracts are disrupted or renegotiated, and so on.

When the price system is humming, it is a marvel to behold, and when it is disrupted, getting back to normalcy (even the low level normalcy of self-reliance) is hard.

In the case of Russia, foreign goods and foreign technology are particularly important. They are an economy organised around selling natural resources and importing everything else. Hence, cutting off ties to the rest of the world will be particularly painful. Russia is more like Saudi Arabia and less like India in this regard.

Finance is the brain of the economy

Every real sector decision is shaped by finance. To get to the correct decisions in the real sector, we need finance to be operating correctly.

Russian finance is not operating correctly. The Moscow stock exchange was closed down on 25 February. For a month, the economy has not known stock prices. It is difficult for managers to make real sector decisions without the direction that stock prices provide. Conversely, the lack of observation of stock prices induces private decision makers to wait and see.

The credit market is also disrupted. Foreign banks have a position of about $120 billion (about 8 per cent of GDP) and are downgrading or exiting their role in the economy. Many borrower firms have a cashflow crisis owing to fluctuations in the economy, and would default on banks. A large scale banking crisis is likely. These fears, in turn, would hamper the ability of banks to fund real sector firms in rebuilding for a world of self-reliance.

The mind of the firm

In this thinking, it's important to go into the minds of the key persons of Russian firms. They are debating and thinking to themselves: Will I default on debt? What will happen when there is a default? What will input and output prices be a year from now? How can I put my skills to the best use in this environment, so as to buy locally and sell locally and make a profit? How do I address the departures of some of my employees? Should I leave? How much emotional and financial resource should I commit to overcoming this crisis? Do I just wait this out, and there will be a regime change, and we will go back to globalisation?

Many firms will choose to lie low and wait for the storm to end, as opposed to jumping to action in reconfiguring production for a new world of self-reliance. This inaction will increase the short term pain in the economy and increase the time required to get back to a humming economy.

The threat of emergency central planning

While Russia evolved into a market economy in the post-1991 period, in every society, when faced with a war and an economic crisis, there is a greater danger of central planning by the state. For an analogy, think of the behaviour of Indian officials when faced with Covid-19. In a crisis, there is a greater risk of abandoning the price system, of officials giving orders to firms. The lack of rule of law and constitutionalism in Russia implies that there is more of a free hand for officials to behave like this.

To the extent that central planning resurges in Russia, it will make things worse.


There are three levels of bad economic performance.

Economic performance is bad when there is self reliance.

It gets worse when we layer self reliance with central planning.

It is worst when the self reliance and central planning are brought in suddenly.

In steady state, Yes, it is possible to do self-reliance. We know that self-reliance will induce mis-allocation of resources and a low GDP, but it can be done. A sustained estrangement by Russia will taken them back to conditions reminiscent of the old USSR or the self-reliant India of old.

But getting to that (poor) state is itself a difficult task. In the short term, the Russian economy is in even worse shape than the mere self-reliance scenario.

The fact that the USSR was once the prime exponent of central planning and autarky does not mean that it is easy for today's Russia to readily go back to autarky and central planning. Russia now operates in the price system; the institutional capacity for central planning has atrophied and cannot be readily recreated. The sudden difficulties in trade, FDI, and finance, create a very difficult environment for every private firm. Self-reliant structures of production can indeed be created, and they will achieve a low level performance of the economy, but it will take years to get there, to reconstruct the complexity of the modern economy in a self-reliant way. In the short term, there will be a large scale economic collapse.

I have previously argued that freezing central bank assets is not that important. But the rest of the economic sanctions are an imposing barrier, that will likely induce an economic collapse, even without considering the direct cost of waging war.

I am grateful to Alex Etra and Josh Felman for useful discussions.

Sunday, March 13, 2022

The industry structure of India's large firms: IT is the biggest industry

by Ajay Shah.

When trade liberalisation took place, roughly 1991-2007, there was large turbulence in the structure of production in India. It's interesting to take stock and wonder: What is the present industry structure of the large firms of India?

The overall output of the country is, of course, made up of both large and small firms. Small firms are illegible, so we know much less about what is going out in the vast informal sector. What we do observe with confidence is the large firms. So, while we recognise that the industry structure of the large firms is not the industry structure of the overall economy, we examine this here.

We look at the 26,040 non-financial firms where data is visible for 2018-19 in the CMIE database. For each firm, we focus on gross value added (GVA) and the wages paid. Our crude estimator of GVA, from the income side, is profit before tax (PBT) + depreciation + wages. All values are nominal.

Industry No. firmsWagesGVAShare inShare in
(Rs. Trn.)(Rs. Trn.)wages (%)GVA (%)
Information technology 1117 3.83 5.56 30.92 22.84
Chemicals 1997 0.95 3.44 7.69 14.12
Mining 175 0.64 1.82 5.16 7.49
Transport equipment 899 0.69 1.78 5.60 7.30
Miscellaneous services 4043 1.08 1.37 8.75 5.62
Metals, metal products 1525 0.48 1.34 3.86 5.51
Wholesale, retail trading 4378 0.61 1.19 4.93 4.90
Food, agro-based products 1645 0.40 1.06 3.27 4.37
Machinery 1591 0.51 0.98 4.08 4.03
Electricity generation 640 0.30 0.88 2.41 3.62
Electricity trans., distn. 120 0.47 0.66 3.77 2.69
Consumer goods 645 0.25 0.58 2.02 2.38
Construction materials 416 0.18 0.58 1.43 2.36
Transport services 783 0.45 0.57 3.67 2.36
Ind., infr. construction 2255 0.39 0.54 3.11 2.21
Communication services 153 0.32 0.50 2.55 2.07
Textiles 1111 0.31 0.50 2.48 2.04
Misc. manufacturing 1005 0.14 0.35 1.15 1.44
Div. non-fin. services 692 0.20 0.31 1.58 1.26
Div. manufacturing 82 0.05 0.13 0.40 0.55
Hotels, tourism 564 0.12 0.13 0.93 0.54
Real estate 204 0.03 0.07 0.26 0.29
All non-fin. firms 26040 12.39 24.35 100.00 100.00

IT was the most important industry: with 30.92% of the wages and 22.84% of the GVA. This category includes computer services and IT-enabled services.

There are six big industries, which have atleast 5\% of either wages or GVA, and they are: IT, Chemicals, Mining, Transport equipment, Misc. (non-financial) services, and metals. The fortunes of the economy are now primarily about the fortunes of these six industries, which add up to about 60 per cent of the total.

It's surprising, how little is going on in some labour-intensive industires like textiles which is at 2.48 or 2.04 per cent.

The mean firm size (overall) is Rs.935 million of GVA or about \$12 million. In the case of IT, the mean firm is bigger, at about Rs.4,978 million or \$65 million.

Some will read read this table and jump to calls for industrial policy that favours these six industries. This would work poorly, as all industrial policy does. But this table should influence our thinking on the prioritisation of the public goods that will serve the six most important industries, and most notably IT.

India is in a position of strength in IT. This is inconsistent with the language of weakness in a lot of policy thinking on IT, where we see an emphasis upon national champions and protectionism [example]. It is in India's best interests to favour an open global order for the IT industry, but the Indian state tends to argue for a world of narrow domestic walls.

Wednesday, March 02, 2022


Position for researchers in the field of working of courts

xKDR Forum is looking for a researcher to work on a project, involving studying the working of courts in India.

xKDR Forum is a Mumbai-based inter-disciplinary group of researchers working in the fields of household and firm finance, public finance management, land and courts. In these fields, the group engages in academic and policy oriented research, and advocacy. The new recruits will come into an active research program in the field of working of courts.

Researchers at xKDR Forum have been working on projects on the working of courts and tribunals in India from an empirical perspective. Using data from various public sources, they have worked on projects involving a study of orders passed by the NCLT and estimating the workload and capacity requirements required at the NCLT. Some of the published research using this work is listed below:

  1. Chatterjee, S., Shaikh, G., & Zaveri, B. (2018). An Empirical Analysis of the Early Days of the Insolvency and Bankruptcy Code, 2016. National Law School of India Review, 30, 89-110.
  2. Damle, D., Gulati, K., Sharma, A., & Zaveri, B. (2021, May 26). Litigation in public contracts: some estimates from court data. The Leap Blog.
  3. Sharma, A., & Zaveri, B. (2020, October 14). Judicial triage in the lockdown: evidence from India's largest commercial tribunal. The Leap Blog.

As a research associate at xKDR Forum, you will work on project deliverables under the supervision of a senior researcher. You will be expected to work in person at the office premises in Mumbai.


The requirements for the role of a research associate are: a background in law, inclination to learn and undertake empirical work, atleast one year of work experience preferably in the field of litigation. You must be comfortable working in an inter-disciplinary research environment with people from varying backgrounds such as economics, public policy and data science. You must be curious and passionate about research and must be willing to work on independent outputs as well as in teams.

The remuneration offered will be commensurate with your skill and experience and will be comparable with what is found in other research institutions.

Interested candidates must email their resume with the subject line: Application for "Research Associate" at xKDR Forum, to Ms. Jyoti Manke at by 31st March, 2022.

Friday, February 11, 2022

Review of "The Rise of the BJP: The Making of the World's Largest Political Party" by Bhupender Yadav and Ila Patnaik

by Josh Felman.

In 2014, the BJP secured a remarkable victory. They won an absolute majority in the Lok Sabha elections, the first time any political party had done so in three decades. Then, five years later, they repeated this feat, increasing their majority. Now, they dominate the national landscape in a way not seen since the heyday of the Congress party, half a century ago.

How did this happen? Most analysts give a one-word answer: Modi. Others give a two-word answer: Modi-Shah. Without doubt, Narendra Modi and Amit Shah are exceptional politicians and strategists. But life is complicated, and great men cannot entirely determine the course of history.

One reason why the BJP won in a landslide in 2014 is that Congress completely mismanaged the economy. The party proved unable to deal with the fundamental problems that emerged after the Global Financial Crisis, such as the sizeable non-performing loans at the banks. Instead, they tried to resuscitate the economy through lax fiscal and monetary policy, a strategy which failed to revive growth, producing only double-digit inflation. Then came a spate of scandals, and the government became paralyzed, unable to do anything at all.

Even so, it is wrong think that the BJP was merely the accidental beneficiary of Congress' collapse. As this book stresses, the BJP has been rising for a long time.

Sometimes a picture is worth a thousand words. So consider the following chart. It shows that despite a notable dip in the 2000s, there has been a clear trend to the BJP's representation in the Lok Sabha. And that trend is upward. The BJP was formed in the 1980s, initially earning just a few seats. By the mid-1990s, it had become the largest party in Parliament.

How can we possibly explain this development? This book provides an answer. Not "the" answer, of course, but a particularly valuable answer, for the explanation comes from a BJP insider. Unlike most books written by politicians, this work avoids the intricacies of long-forgotten debates and refuses to engage in score-settling. Instead, this is a serious work, covering the entire sweep of independent India's history, documented with extensive footnotes -- exactly as one would expect from the co-author, who is a noted, non-political academic. (Full disclosure: I have also been a co-author with Ila Patnaik.)

The aim of the book is to explain how we have arrived at the current political pass. Of course, it does so from a BJP perspective. But that is exactly the need of the moment: we need to understand what the BJP believes, as these beliefs will translate into actions that affect all of us.

So, what explanation does the book provide? Essentially, it argues that the rise of the BJP stems from two factors: its organizational ability and its message. Of the first, the book makes a convincing case. Indeed, no reader – no matter what his or her political view – can finish this book without a sense of awe. It’s not just that the party has come up with one brilliant idea after another, such as "multiplying" their Prime Ministerial candidate by projecting 10-foot holograms of Modi in 200 cities across the country. Even more astounding is the BJP's ground game.

Consider the BJP's strategy for the 2014 election. The party developed a booth management strategy, under which leaders were assigned to every single one of the 1 million voting booths in the country. Each leader supervised around 50 individuals, whose job it was to meet with around 30 voters and convince 15 of them to vote for the BJP.

This arrangement required an incredible amount of effort, coordination – and manpower. Simple arithmetic shows that 50 leaders for 1 million booths required no less than 50 million party workers. For the 2019 election, the party mobilized 110 million members. How on earth did the BJP manage to convince so many people to work so hard for the party?

One strategy has been to convince members that they are part of a family. They even have a slogan for this: Mera Parivar, Bhajpa Parivar (My family is the BJP family.) In practice, this means that the life of a party worker is dominated by an endless calendar of events: campaigns, followed by political activities, interspersed with visits from seniors. Particularly strenuous efforts are made to nourish connexions amongst members from all strata of the party, with seniors being asked to share meals with workers on their visits to the regions.

Another strategy is to employ the highly motivated swayamsevaks (volunteers) of the RSS. The authors are unequivocal about the links between the RSS and the BJP. They emphasize that the predecessor of the BJP, the Jana Sangh, was founded with the explicit purpose of giving a political voice to the RSS' vision for India. And they note that the BJP was born when the leaders of the Jana Sangh were forced to choose between their commitment to the RSS philosophy and their political career in the Janata Party. They chose to stay true to their ideology.

The devotion to this ideology remains strong to this day. Prime Minister Modi has said, 'I am connected to the mission and not ambition. In my life, mission is everything, not ambition'.

So, what exactly is this mission? Put another way, if the second reason for the BJP’s success is that it has developed an attractive message, what exactly is that message?

In some areas, the book gives a clear answer. It says that right from the start the BJP has focused on the fight against corruption. Its first major success came in 1987 when it was able to pin the Bofors scandal on the Congress Party, accusing their senior officials of taking bribes in return for granting a large defence contract. In 2002, Venkaiah Naidu became BJP President partly on the strength of his credentials as convener of an anti-corruption movement in Andhra Pradesh. And of course corruption was a major theme of the 2014 election.

Another key element of the BJP mission, according to the book, is improving the standard of living of the poor, the people whom the Jana Sangh used to call the 'last man in line'. The Modi government came up with a particularly effective way of doing this, by providing the poor with tangible benefits such as LPG gas cylinders and toilets – and cash transfers, paid directly to newly created Jan Dhan bank accounts. These programs created a direct link between the party and the poor, earning in particular the loyalty of female voters.

In other areas, however, the book is much less precise. For example, we are told repeatedly that the BJP believes in "nationalism". But it is not clear what this means. After all, Congress is also a nationalist party; indeed, they led the independence movement against the British.

Some commentators claim that the BJP's nationalism is different because it is a communitarian vision, focusing on building a Hindu nation-state. The BJP strenuously denies this charge. Indeed, the word Hindutva is not to be found anywhere in this book. Instead, the BJP views itself as the party of true secularism, devoted to the principle that no group should be treated differently by the state. Accordingly, they oppose triple talak divorce and special status for Kashmir – because these policies treat different groups differently.

But this argument sits uneasily with the claim that the BJP believes in 'cultural nationalism'. The book takes great pains to stress that this phrase refers to an all-Indian culture, coming out of many traditions: Hindu, Muslim, even Western. But the only traditions the BJP has mobilized to defend – at least the only ones mentioned in the book are Hindu traditions.

Particularly striking is the framing of the dispute over whether to build a Ram temple on land where a mosque was standing. As the book puts it, for the BJP, Ayodhya was not a land dispute; "it was a mission to unite India with the thread of cultural nationalism". The argument seems to be that the country should have united behind this plan, since it honoured an important tradition, the place where Lord Ram was reputed to be born. But many people did not see things this way, and the dispute proved enormously divisive.

That said, the BJP's message of cultural nationalism does resonate with a significant section of the population, giving it a compelling message to go with its superb organization and millions of devoted members. That makes the BJP a formidable vote-getting machine. No wonder it has just risen and risen.

But history teaches that a relentless rise is often followed by a disastrous fall. Indeed, one doesn't have to look very far to see an example of this process at work. Right after independence the Congress Party bestrode the political landscape like a colossus, winning 364 out of the 489 contested seats in the first parliamentary election. But since the 1970s it has gradually decayed, to the point where it holds only 52 seats in the current Lok Sabha.

The BJP has thought long and hard about this example, concluding that Congress declined because it failed to nourish its roots during its long period in power. To make sure this doesn’t happen to them, the BJP not only pays considerable attention to sustaining morale amongst its party members (as already mentioned); it also takes great care to avoid the perils of dynastic leadership. The BJP offers a clear path for ambitious young supporters, who can start with party work, progress to a role in government, and then take up role of an elder statesman. To ensure that this career ladder is not blocked by elderly seniors, members are expected to step aside from active operational roles once they reach the age of 75. It will be interesting to see whether this practice continues, now that the party has a firm hold on power.

Beyond the constant need to replenish the party with new energy, the BJP faces another challenge, one that will be even more difficult to manage: it must meet the needs of the nation. Without doubt, the BJP has found a way to satisfy what we could call 'Cultural India'. But meeting the needs of Aspirational India, the hundreds of millions of young people looking to find good jobs and raise their living standards, will be a far more difficult task.

The current government is fully aware of this problem, having inherited an economy that was in shambles. Accordingly, it has implemented reform after reform, including Inflation Targeting, the Insolvency and Bankruptcy Code, and the Goods and Services Tax. But the economy has still failed to take off, as investment has remained stubbornly low.

So far, there have been no political consequences, as the public has accepted that it will take time to restore an economy that was in such bad shape when the current government arrived. But the BJP knows that at some point, the public will demand results.

Accordingly in 2020, the government decided to change tack, abandoning the post-1991 policy of opening up the economy in favour of a new approach, Atmanirbhar Bharat ('Self-Reliant India'), whereby tariffs are being increased to encourage import substitution while production subsidies are being given to firms selected by the government. It is still early days, but there is little in India’s history or that of Asia more generally that suggests this strategy is likely to work. In that case, trouble for the BJP may lie ahead.

For far too long, the nature of the BJP has remained a mystery to the English-reading public. Finally, we have an authoritative presentation of their point of view, one that allows us to understand better how the BJP has risen and what it believes. For anyone who wants to understand how India arrived at the current juncture – and where it is likely to go in the future – this book is a must read. Buy it and read it carefully.


Josh Felman is the principal at JH Consulting.

Monday, January 24, 2022

Does financial and macro policy explain household investment in gold?

by Renuka Sane and Manish Kumar Singh.

Gold plays a significant role in the portfolio of Indian households. Several explanations have been offered: gold is an important source of credit, it matters for socio-cultural and political reasons, provides women with agency as women are likely to have more control over the gold they own relative to financial assets. Research has, however, not paid adequate attention to the performance of gold as an asset class. Investment in gold is often brushed aside as irrational based on the evidence that gold has delivered near zero real returns (in USD) over a 100 year period (Siegel, 2014). In a new working paper, Sane and Singh (2022): "Does financial and macro policy explain household investment in gold?" We argue that investments in gold have to be seen in the context of Indian financial markets. Gold is a a far more sensible investment that international research would suggest.

Indian financial markets

Household saving is a function of the financial environment within which the household operates. The following characteristics of Indian markets are worth noting:

  1. High inflation: India adopted a formal inflation target of 4 per cent within a band of +/- 2 per cent in August 2016. Before this, high levels and volatility of inflation had been a persistent problem in India. The average inflation in the four years prior to inflation targeting was around 7.26% - this dropped to 4.19% after the adoption of the framework (Patnaik & Pandey, 2020). When there is such high and persistent inflation, households will naturally look for instruments which are able to, at the very least, beat inflation, even if not provide a complete hedge.

  2. Interest rate management: India has consistently followed a policy of managing long-term interest rates on government borrowings. This has led to an environment of low interest rates for government borrowing, and has prevented long-term yields from rising. Interest rates on fixed deposits which are benchmarked to long-term government yield is also relatively low and have been consistently falling over the 1999-2021 period from an interest of 9-10% to about 4%.

  3. Volatility in equity markets: Emerging markets are generally more volatile than markets in OECD countries. The annualised 10 year standard deviation on the MSCI Emerging Markets Index was around 17%, while that of the MSCI World Index (based on large and mid cap representation across 23 Developed Markets (DM)) was around 13%. An asset that serves as a hedge assumes greater importance in emerging markets relative to developed markets.

  4. Capital controls: One way to hedge a portfolio is to diversify across different markets. However, this has been difficult in India, owing to a complex framework of restrictions on the current and capital account till the year 2000. In 2000, the current account was made fully convertible, and a modified framework for capital controls was put in place (Patnaik & Shah, 2012). There continue to be restrictions, on both the current and capital account, which differ depending on the type of investor, and the assets in question.

  5. Currency interventions: Patnaik & Sengupta (2021) study RBI interventions and find that when there has been pressure on the rupee to appreciate, the RBI has responded by intervening in the forex market and buying dollars. When, in the aftermath of the 2008 global financial crisis, there was pressure on the rupee to depreciate, the RBI allowed the rupee to fluctuate in this period. Indian investors, therefore, benefit from a larger depreciation of the rupee for those assets where the price is determined in international markets.

High inflation levels and volatility, low interest rates on account of financial repression, inability to invest in international markets until very recently, depreciation of the rupee have a bearing on the choices that are available to households. Financial repression changes the risk-return trade-off between fixed deposits and gold. Similarly in an environment where individuals are restricted from investing in overseas markets, gold offers a way for doing international diversification. These become important considerations as we evaluate the performance of gold vis-a-vis the Indian equity market.

How does gold fare?

We use data from June 1999-March 2021 and find that:

  1. In the last 20 years, real returns on gold have always been positive.

  2. Apart from a few years around 2018, gold has consistently beaten returns on fixed deposits.

  3. RBI interventions in the currency market changes the dynamics of gold return for Indian households. Our regression estimates suggest that if the Indian rupee depreciated against the U.S. dollar by 10% in a month, then the gold price in Indian rupees increased on average about 3.63%. While the exchange rate pass-through is far from complete, it implies that currency interventions by the Reserve Bank of India have implications for the gold price that is seen by Indian investors.

  4. Gold and NIFTY seem to have moved together till about 2008, after which NIFTY saw a sharp fall, while gold continued with its upward trajectory. The two asset classes moved together again till about 2014, and then from 2015 till early 2020. There seems to be a divergence in the series around 2014, when NIFTY was rising steadily while gold prices fell before rising again. Gold is a strong hedge against the NIFTY when measured in daily frequency. In the last 10 years, this relationship had become stronger.

  5. The global minimum variance portfolio which only includes gold and NIFTY suggests a 63% weight to gold for target annual return of about 13%. As the target return increases, we see that the weight allocated to gold drops to about 3%. When one does a similar optimisation exercise including the S&P 500 returns, the global minimum variance portfolio suggests a weight of 46.5% for gold, 31.3% for NIFTY and 22.2% for SPX. Once international diversification is possible, the weight of gold has fallen by almost 16 percentage points. The confidence intervals, however, on these estimates are wide given the paucity of longer time-series data on returns.


Gold has provided the means to Indian households to overcome the difficulties associated with high inflation in a financially repressed macroeconomic environment with capital controls. Given the performance of gold, fixed deposits and NIFTY, and the difficulties of international diversification households have not been entirely unreasonable to hold gold in their portfolios. If policy has to channel household savings to more productive uses, it has to confront the underlying issues in the macroeconomic environment which make gold a preferred investment choice.


Patnaik, I. & Pandey, R. (2020). Four years of the inflation targeting framework. NIPFP Working Paper Series, No 325.

Patnaik, I. & Sengupta, R. (2021). Analysing India's exchange rate regime. India Policy Forum (forthcoming).

Patnaik, I. & Shah, A. (2012). Did the Indian capital controls work as a tool of macroeconomic policy? IMF Economic Review, 60, 439-464.

Sane, R. & Singh, M. (2022). Does financial and macro policy explain household investment in gold?, Dvara Research Working Paper Series No. WP-2022-01.

Siegel, J. J. (2014). Stocks for the long run: The definitive guide to financial market returns and long-term investment strategies. McGraw Hill.

Renuka Sane is a researcher at NIPFP, New Delhi. Manish Kumar Singh is a researcher at IIT Roorkee.

Thursday, January 20, 2022

Review of "The Rise of the BJP: The Making of the World's Largest Political Party" by Bhupender Yadav and Ila Patnaik

by Ajay Shah.

The INC emerged as the dominant party after independence. A similar phenomenon was seen in other countries, e.g. the PRI in Mexico. With the 2014 and 2019 Lok Sabha election results, the BJP emerged as a dominant force in Indian politics. For everyone interested in India, we need to learn more about the sources of this success, and about the nature of the BJP as a political party and as an organisation. Many books about the BJP have been written. I found the new book insightful and thought provoking; it has many new ideas, it made me think in new ways, it changed the way I see the world.

Many simple stories are told about the rise of the BJP, e.g. around nationalism. I have been skeptical about the extent to which these can be at work. After all, `National' is the middle name of the INC, and after winning the war in Bangladesh in December 1971, Indira Gandhi's INC rapidly collapsed into a political crisis in 1973-1975. Perhaps we underestimate voters, perhaps we are too ready to impute base passions upon voters. We need to think more about the forces at work.

An insightful path for thinking about the world is to see the role of organisations, of teams of humans that come together to achieve complex tasks. To understand an organisation, we must understand the mechanisms of information, incentives and power that bind the group of people together, and generate actions by each person that are adequately consistent with the objectives of the organisation. This way of thinking yields insights about for-profit firms, into the large magnitudes of resources that are used by Indian state organisations which fail to deliver on their organisational objectives, and also into political parties. It encourages us to think about deeper forces rather than concepts like popularity of individuals or the passions of the street. In the book, I found new insights into the BJP as an organisation.

In this organisation-oriented approach to the evolution of Indian party politics, we would tell a story where in 1947, the INC was the only game in town. It had built a complex organisation under highly adverse conditions, of British rule, of a low probability of personnel achieving personal benefits from political activism, and of limited resourcing owing to the fear of rich people. The organisation design of the INC, that worked 1919-1962, broke down thereafter. The arrangement of information, incentives and power, that worked for the freedom movement and for the early decades after independence, were no longer optimal for the later period. In parallel with this decline of the INC as an organisation, the book tells the story of how the BJP built a more effective organisation design.

A major theme of the book is political mobilisation of the masses. A hundred years ago, Gandhiji got people to get involved, to march on streets, to turn the other cheek when faced with state violence. In a lost age, people walked many kilometres to catch a tiny glimpse of Nehru and hear a raspy voice crackling in loudspeakers. The precise recipes for mobilisation change over the years. When the people lost interest in listening to politicians, there was not enough fundamental thinking; many organisation people tried to cover up for the loss of interest through manufactured crowds. When I have been in political rallies in India, I have often seen listless people.

The BJP innovated with an array of process methods for political mobilisation. Whether it is a yatra or a divas, they have developed clear names and process methods for a continuous heartbeat of political mobilisation that is now taking place all across the country. Regardless of the extent to which there is a base that is ideologically motivated, a lot of people are attracted by the drum beat of activity and a sense of belonging to a club. The massive scale of mobilisation activity all around the country helps pull in enough voters who would otherwise be non-ideological, to get to the 37% vote share.

There is an ironic link between INC welfarism and BJP mobilisation. The Indian left and the INC focused the union government towards welfare, and built the UIDAI system. The BJP has built a remarkable system for reminding the recipient of welfare, all around the country, that the subsidy has come from Mr. Modi. We marvel at the complexity of information processing, in getting precise and personalised facts out to millions of party workers who talk with hundreds of millions of voters. These were unintended consequences of the emphasis in the Indian state upon subsidies and not public goods.

In understanding India, we need to think more about the BJP. We have to look beyond the `crests of foam that the waves of history carry on their strong backs'. Bhupender Yadav and Ila Patnaik have written a valuable book which helps us understand the phenomenon and direct our curiosity into a new set of questions.