Rupee and Real futures at ICE

Intercontinental Exchange has announced cash-settled futures on the Indian Rupee and the Brazilian Real [press release] [Saabira Chaudhuri in the Wall Street Journal]. With this, ICE is the first serious global exchange to start trading in the rupee.

Vimal Balasubramaniam and I have pointed out that the global market for the Indian rupee is adding up to some fairly big numbers. I recently noticed that in 2010, even though China is a much bigger economy than India, rupee trading was 0.9 per cent of global currency trading while RMB trading was at 0.7 per cent. Similarly, it appears that the INR NDF is bigger than the RMB NDF, even though China is a much bigger economy. Something is going right in the growth of the rupee as a big currency by world standards. Rupee trading at ICE would strengthen that process.

The ICE announcement also connects to the issues of global competition for Indian underlyings. The two biggest financial markets in India are Nifty and the rupee. So far, NSE faced serious competition with Nifty futures trading at SGX and CME, but there was no significant rival with the rupee. With the arrival of ICE, the competitive dynamics for the rupee changes, which is a welcome development. NSE now faces genuinely difficult competition from three first-tier rivals: CME, ICE, SGX. At the same time, the outlook for rupee trading in India is hobbled by an array of constraints:

• ICE can pitch for business from non-residents, while NSE cannot, since foreign participation in currency futures is banned. We seem to think that OTC trading of currency forwards requires encouragement from industrial policy operated by RBI.
• ICE is able to start contracts any time it likes on (say) the Brazilian Real while NSE is forbidden from starting any new contracts.
• India has mistakes on tax treatment, lacking residence based taxation, while the world has all this well sorted out.
• India has an array of other policy and regulatory mistakes that hobble local players. The ICE transaction charge is zero. I wonder if litigation will now start at CCI to try to block this.

A process is afoot, at present, through which the Indian financial system is being hollowed out. If this process runs unchecked, RBI and SEBI will be left lording over nothing. There is a need to reverse this  policy framework of reverse protectionism.

Interesting readings

A talk by Pratap Bhanu Mehta.

Governance 2.0 by Ila Patnaik, on the notions of autonomy and independence for agencies like the CVC.

Trampling on the individual in India:
Jim Yardley in the New York Times. An `Oppressive' Regime Limits Free Speech in India, Civil Liberties Expert Says in the New York Times. How two Mumbai girls changed the Thackeray conversation by G. Pramod Kumar on Firstpost.

Why are India's politicians scared of social media? by Mahima Kaul on UnCut. Conceived in haste, India's Internet law now targeted for change by Niharika Mandhana on the New York Times. It is not enough to solve the IT Act, we need to fix the IPC also.

Ila Patnaik on what ails the Indian economy today: Growing pains and Policy easing won't lift investment.

In the aftermath of the Emkay crash [link, link], Mobis Philipose in Mint worries about where SEBI is going.

A great piece by Devesh Kapur on how wrong Indian official thinking in higher education is.

Morten Jerven on economic measurement in Africa. Seems like a fair description of Indian official statistics to me.

Shareholder lessons: Stay away from Ponty Chadha-like businesses by Arjun Parthasarathy, is linked to a theme from Indian capitalism is not doomed.

One head is better than many: Ila Patnaik on the need for modifying the present Indian financial regulatory architecture.

The misery of a sixteen year old in 1984 in the USSR.

A great debate between Justice Scalia and Justice Breyer of the Supreme Court of the United States.

Marco Arment walks into a new Microsoft store. And, see Charlie Demerjian on the difficulties that they face. Jakob Nielsen, the expert on usability, analyses Windows 8 on the tablet and the computer. So far, the market is giving Microsoft a thumbs-down, with a -9% return over the last six months, net of macroeconomic fluctuations..

Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?

A recent article: Did the Indian capital controls work as a tool for macroeconomic policy, Ila Patnaik and Ajay Shah. IMF Economic Review, page 439--464, volume 60, 2012.

At the main page for this paper, you will find all the materials: a video presentation, PDF paper, link into the journal, a compact summary on voxEU.

The IRR of UIDAI is over 50 per cent in real terms

We have released a cost-benefit analysis of the UID system. In one line, the result of the calculations, under fairly conservative assumptions, is that the IRR of building the system is 53% in real terms. Hence, building UIDAI is a pretty good use of public money.

Through this page, you can access a short and accessible explanation, a video presentation, and the full PDF paper. We have also released the spreadsheet used in our calculations, so that others can modify the assumptions or other numerical values, and obtain alternative answers.

This is true in the Indian case. Is it true in general? I feel the answer depends on (a) The scale of expenditure on subsidy programs and (b) The extent to which present implementation systems suffer from the kinds of leakages that UID readily addresses (multiple payments to one person, payments to ghosts). If a country has small welfare programs, that would undermine the case for UIDAI. If a country is doing a pretty good job of paying out subsidies through conventional procedures, that would undermine the case for UIDAI.

Land and property rights workshop at IRMA, Anand

Venue: Institute of Rural Management, Anand (Gujarat).

Dates: 04-06 December 2012.

In recent years, land related issues have emerged at the top of the social and political agenda. A three day workshop on theoretical aspects and practical implications of property rights for rural transformation is being organised at IRMA, jointly with ARCH, Gujarat, and Liberty Institute, New Delhi, with the support of Friedrich Naumann Foundation.

The workshop will deal with topics such as the political evolution of property rights, their constitutional significance, the changing nature of land conflicts, the significance of property for economic well being, political empowerment and democratic participation. The Forest Rights Act provides a practical illustration of the changing contours of the discourse. Both national and international legal instruments around property will be discussed. The objectives of the workshop are:

1. To deliberate on the significance of property rights as a pro-poor instrument
2. To create a network of scholars and practitioners around property and land rights
3. To gain ground level understanding of the progress in forest rights implementation

Please visit www.FRA.RighttoProperty.org, to get a glimpse of a new initiative which allows remote rural communities to document and map their own land. If you are interested, contact mdp@irma.ac.in and see the details.

Macroeconomics workshop at NIPFP on 12 November

Five papers in macroeconomics at NIPFP tomorrow. All are invited.

I should like to call you all by name

• China: Worse than you ever imagined by Ian Johnson in the New York Review of Books.
• Totalitarianism, Famine and Us by Samuel Moyn in the Nation.
• Stalin's cannibals by Ron Rosenbaum, on Slate.
• The worst of the madness by Anne Applebaum in the New York Review of Books.
• Stalin and Hitler: Mass murder by starvation by Timothy Snyder in the New York Review of Books.
• Kakfa in Beijing by John Garnaut and Sanghee Liu in Foreign Policy.
• Bloc heads by Louis Menand in the New Yorker magazine.
• Yegor Gaidar's story about the dying days of the USSR is fascinating. This is not going to be the endgame of the PRC.
• Requiem, by Anna Akhmatova.