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Thursday, March 15, 2012

Insights from the Economic Survey 2011–12-Financial Intermediation and Markets

The newspaper editions of tomorrow and dayafter will be filled with analysis and insights as people try to decipher the numbers and read the tea leaves, for both the Economic Survey and the Union Budget. However, this blogpost aims to capture the nuggets mentioned in the 14 chapters of the budget(which I did read today!), and does not claim to be exhaustive given the huge data overload! Anyways, here goes for Chapter V(normal text is from the survey, bold text is mine) which can be read at this link
  1. Bulk of Agricultural credit is by commercial banks(not cooperatives etc even though it maybe mostly PSU banks only..)-this was not something I imagined..
  2. Private Placements makes up the bulk of Indian capital markets(yellow shading mine)..and also the number of IPOs are lower than what one would expect for markets like India..
  3. Mutual funds are back in vogue after the SEBI-IRDA spat led to net withdrawals and even though fund managers have been exiting the industry..Unsurprisingly, the private sector has been leading the fund raising as always
  4. BSE incentive system seems working as it grows its equity derivatives business, but it is still miniscule compared to NSE-moral DO NOT trade derivatives on BSE!
  5. Why everyone loves insurance-Internationally, the insurance and pension segments, in view of their typically long-term-longonly investment style, are believed to contribute to financial stability
  6. Don't expect any liberal External Commercial Borrowing(ECB) norms soon under this Prime Minister! -An important reason India emerged largely unscathed from the global crisis of 2008 is the strict ECB policy that places all-in-cost, end-use, and maturity restrictions on foreign borrowings by corporates. As a result, India’s external debt to GDP ratio declined from 38.7 per cent in 1991-92 to 17.8 per cent in 2010-11, while the debt service ratio declined from 30.2 per cent to 4.2 per cent. Corporates were therefore not exposed to balance sheet recession that could have happened due to excessive foreign borrowings. The liberalization of ECB policy, as a result, has to keep in view the need to maintain sustainable levels of external debt ratios. This is more important because of the fact that high levels of external debt ratios contributed to the BOP crisis of the early 1990s

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