cafeconomics

 Time and again, we come across situations where large banks incur huge losses due to some poor bets or lack of asset liability matching. As a result, we have unintended consequence of the financial economy pulling down the real economy and common people getting impacted due to no fault of theirs. An equity investor or a mutual fund investor has a reasonable idea of the risks involved in the markets. She understands that there are downside risks involved in equity or mutual fund investments. So it is safe to conclude that an equity investor(mf investor) is more risk taking than a bank depositor. A bank deposit holder is far less risk-taking when compared to an equity investor. However, we notice that depositors run into trouble to risk taking activities of their banks. One solution to this problem,(apart from stringent disclosure requirements, capital requirements and regulatory supervision) is to align a bank's risk profile with that of depositors' risk profile. So while makin...

 This is a descriptive article on the Indian Economy based on data provided by the Economic Survey 2023. Link to open the Economic Survey in a new window As per advanced estimates for 2022-23 India's GDP is Rs 1.576 crore crores. In dollar terms, the chart below gives you a feel for the GDP of India. At constant prices of 2011-12 India's GDP is at $1.97 trillion. Economists often say that a significant proportion of Indian Economy is in the unorganized sector and therefore it is difficult to account for the same. Several steps have been initiated to formalize the Indian Economy. to be continued

 Based on Prof.Damodaran's/S&P Capital IQ data set, there are approximately 3982 stocks listed on Indian market or at least for which data is available. The actual number could be different but that's not the issue here.  In the attached excel workbook, the first excel sheet contains the data set of total number of stocks with a serial number starting from 1. In the second excel sheet, we have 30 names selected using random number functions on excel. By clicking on the random tab we iterate the random selection of stocks. After iterating this process for a large number of times, 30 names have been chosen. The key is to not be biased towards any particular company or group.On the third excel sheet the price only return performance of these randomly chosen stocks has been compiled from the economic times website. The 5-year price return of such a randomly chosen equally weighed portfolio of 30 stocks  comes out to be 13.57% and it does not include any dividend and buy b...

 Everyone has a wish list for the annual budget event and so here are some of my ideas. 1. Welfare Effectiveness Index by Scheme and State: Each year we allocate thousands of crores for different welfare schemes including health, education, child and women welfare etc. The quality of welfare is not the same everywhere in the country with a huge population.  In order to gauge the effectiveness of the welfare schemes a welfare effectiveness index can be introduced. By surveying the beneficiaries on the key aspects of the welfare scheme and registering responses on a numeric scale, one can gauge the effectiveness. A healthy feedback loop can be put in place. Further potential beneficiaries can be encouraged to form Whatsapp/social media  groups (wherever possible) to sort out common issues and communication. 2. Ease of doing business index by sector: An ease of doing business by country and state is in place. It can be extended to sectors as well. So if mining sector scores ...

 It is a great honor for India to host the G20 meet this year.It is an acknowledgement of emergence of India as a global power. Among a plethora of economic and political issues at hand, one area that is not receiving due attention is the problem of immigrant workers particularly in the middle east. For decades, we are accustomed to hearing and watching about atrocities against (South Asians!) immigrant workers in the middle east. The ghosts of migrant laborers are looming large over the foot ball world cup tournament this year. It is high time India addresses this issue on behalf of the South Asian workers. In the next three decades, crores of young people will get added to the work force and many of them will immigrate to foreign lands in search of work and greener pastures. While the remuneration, living and working conditions for most of the skilled and white collared workers is great, the same cannot be said of blue collared workers who involve in physical labor. It is importa...

Students of finance are well aware of the rule of 72 to estimate the time taken to double your investment. (just divide the number 72 by your expected annual return to arrive at the number of years taken to double your investment) If we extend this rule of 72 to real GDP growth rate we can estimate the time taken for the economy to double its GDP. In the table below we can see the US example. (data sourced from bea) We can see the actual time taken for the GDP to double in column 3 and the time predicted by the rule of 72 in column 5, which seems to be a fair estimate. Extending this rule to any other economy we can estimate the time taken in number of years for the GDP to double based on expected annual GDP growth rate. On the left hand scale we have the expected real GDP growth rates in % and the numbers on the right hand side indicate the time taken for the GDP to double in years. This should give us a fair idea about the growth rate of our economy!

The interaction between monetary and fiscal policies can't be clearly delineated into neatly divided quadrants but one can broadly capture the policies and their impact on the economy as shown in the chart below.  Impact of Fiscal and Monetary measures: The impact of fiscal spending/contraction has a time lag when compared to monetary policy. The impact of fiscal measures is more targeted, long lasting and the multiplier effect is much bigger when compared to monetary measures. Monetary authorities are much more nimble footed when compared to their fiscal counterparts but their impact is only short term in nature.  State of the Economy:  Both fiscal and monetary authorities respond depending on the current state of the economy - expansion, recession or stagflation etc. The following paragraphs describe each of the scenarios outlined in the quadrants above.  Q1 - Both fiscal and monetary policies are expansionary: When the economy is going through a protracted downtu...