Entry of foreign legal firms into India

Cyril Shroff, one of India's most famous lawyers and a great beneficiary of liberal economic policy, presents `infant industry' and other `pre-requisites are missing' arguments about why liberalisation of legal services is inappropriate.

Capital controls against participatory notes

I have been surprised at how well the public has digested SEBI's recent moves on PNs. As an example, see M. K. Venu in ET and a debate in Business Standard.

In most parts of the economic policy debate in India, the people are deeply cynical about the motives and the competence of government, and deregulation is viewed as a good thing. The transformation of India - going from 3.5% growth in 1979 to 7.5% growth in 2007 - was critically about getting government out of a deep engagement with the economy. But in finance, there is not - as yet - a widespread appreciation of the difficulties of the license-permit raj that is in operation (though Jamal Mecklai gets it). Regulation is uncritically viewed as a good thing; audiences applaud when more restrictions and more controls are announced.

Part of the problem, of course, is that regulated firms are afraid of criticising regulators. Another part of the problem is that domestic lawyers & accountants are beneficiaries of the existing FII framework and would not be happy if India moved forward to ending the FII framework.

Amongst the sensible material that has come out is this debate between K. N. Vaidyanathan, Susan Thomas and Rashesh Shah in ET; an editorial in Indian Express; and this article in ET by Shishir Prasad.

The monetary policy announcement

Indian Express has nice commentary -- Ila Patnaik before the announcement and Bibek Debroy after.

Slideshow on India and convertibility

I did a slideshow on India and capital account convertibility at a Euromoney conference on derivatives. In it, I used some interesting results from a new paper by Gurnain Pasricha, which was written up by Nirvikar Singh in Financial Express.

The `slowdown' in IIP consumer durables

In Financial Express today, Ila Patnaik examines the `IIP consumer durables slowdown' and finds it's mostly about bad data.

The moribund government bond market

India is a land of extremes. Right alongside the remarkable success of a reforms effort on the equity market, we got a remarkable failure of a reforms effort on the bond market. Manish Sabharwal & Digant Bhansali have a fascinating article in Economic Times on the slow death of the government bond market in India. This table is in the article:

Feature	03-04	04-05	05-06	06-07	07-08
Number of gilts traded > 4 times/week	27	14	9	6
Number of gilts that addup to 90% of volume	26	33	15	11	11
Volume of top traded security (%)	11	23	18	33	36
Share of NDS in volume (%)	0	0	53	79	84
Equity turnover (billion USD)	933	1051	1802	2564
Gilts turnover (billion USD)	365	216	164	221

It's astonishing to notice that from 2003-04 to 2006-07, a time of remarkable GDP growth in India coupled with a massive scale of government bond issuance owing to large deficits, government bond turnover dropped from $365 billion to $221 billion. Over this same period, equities turnover went up from $933 billion to $2564 billion.

The state of the market is visible in the turnover of the biggest single bond - this went up from 11% of the market in 2003-04 to 36% in 2007-08.

This is the period over which RBI implemented the Negotiated Dealing System, their vision for how the bond market should be transformed.

Modernising the monetary policy regime

Glenn Stevens has a great speech from 2006 telling the story about how Australia evolved out of the pegged exchange rate. Reading it is useful for thinking about India's policy questions about the monetary policy regime. As is typical with central banks from the first world, the writing quality of the speech is excellent. I was amused to see this story from the pre-1983 period:

The exchange rate management committee also sought to add a random element to the daily movements in the exchange rate, around the general trend appreciation, to reduce the predictability in the movements in the exchange rate and thwart the speculation.

It struck me that the thinking at RBI circa 2007 was not that different from the thinking of RBA pre-1983, i.e. over a quarter century ago.