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Economic Times
16-07-2025
- Business
- Economic Times
Stick to a curbed diet, RBI: Despite weak demand, why central bank should curb its reflationary zeal a bit
Easy on the regime change There are moments in the lives of central bankers when they cease to exult over unexpectedly low inflation and consider what it is that is causing prices to behave well. The inflation print of 2.14% for June might be one such past the usual explanations of financial market economists on base effects and sequential drops in food prices, a headline inflation print that is a good couple of percentage points below the target of 4% might be telling us something about a sluggishness of demand that no statistical trope can mask. The need to fret becomes compelling when inflation prints are seen in conjunction with other indicators, such as loan demand and piles of surplus cash at banks. Credit growth measured year-on-year for June was a little over 9%, and cash surplus reached a peak of ₹9 tn in early July before RBI started mopping it up. The credit growth rate for the same period in June 2024 was, incidentally, over 19%. What lessons should RBI draw from this? Standard business cycle theory would advise it to fear not. The fall in inflation is likely to be the result of past efforts at monetary tightening that are paying off. It is impossible for central banks to get things exactly right. With his oft-quoted 'Arjuna's eye' on inflation, ex-governor Shaktikanta Das might have overdone monetary compression a tad, resulting in the super-low inflation rates. With inflation seemingly under control, all Sanjay Malhotra needs to do is reverse the process. He seems to have done this in good measure with reductions of half-a-percentage point each in the repo rate and CRR. He might want to do a little more, but the key lesson that business cycle theory offers him is the virtue of patience. Monetary policy works with lags. Malhotra should stop fretting over current growth or demand and wait for his labour to bear fruit - perhaps by the end of the year or a few months later. However, there's a problem if one sees the lack of demand as a long-term structural problem rather than a neat cyclical story. Both consumer demand and private consumption have been flagging, at least since 2017, and the attempt to push them up to levels compatible with a sustained 7%-plus growth rate has been is possible to go further back to search for causes of this structural slowdown, but 2020 - the year of Covid - might be a good place to start. The recovery from the consumption drop was robust, but there seems to have been a sizeable element of pent-up or revenge spending that was bound to peter out. Economists might brandish conflicting data to either question or support the view that the economic recovery was uneven or not, but most consumer-facing companies would attest that the recovery was K-shaped, with a bias against the mass post-2020 geopolitical risks ratcheted up with two wars - Ukraine and West Asia. Automation found an upward inflection point as AI made its arrival as a usable, scalable innovation. A new US president and his protectionist policies brought a real risk of a compression in global trade and a domestic American dislike uncertainty in decision matrices as much as weak demand. If, indeed, the private investment rut has continued in India long after Covid waned, it is difficult to blame Indian companies for being too timid. A farm sector recovery in 2024 promised to even out the K-shape of the post-Covid trajectory, but it was replaced by concerns about the 'hollowing out' of the middle class, with white-collar job losses particularly in IT-related sectors. The fear, stoked by some commentators, is that as AI gathers steam, an entire swathe of mid-tier jobs is at does this mean for RBI? If structural factors are, indeed, the reason for muted credit growth, monetary policy has a somewhat limited role to play. As the current combination of massive excess liquidity and weak credit growth has shown, more accommodation can give the impression of an emerging 'liquidity trap', where interest rates fail to move the needle. This could hurt broader sentiment in the economy if it becomes the dominant economic post-Covid period saw a sharp increase in household debt. From an average of 35% in 2019, it climbed to 42% of GDP at the end of 2024. While this might still be lower than levels in other emerging economies, such a sharp increase has challenges. If monetary policy lowers interest rates, it does bring down EMIs of households. However, if banks use easy money to expand their retail portfolios at a time when employment and income flows are uncertain, there is a risk of loans going bad, threatening financial if we do believe Milton Friedman's claim that inflation is ultimately a monetary phenomenon, leaving too much excess cash in the system might exacerbate inflation pressures if there are supply shocks in food and fuel. RBI might want to curb enthusiasm about reflating the economy a little. (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. Leadership shakeups cloud Ola Electric's revival attempts Trent trips on the ramp. Is it still worth the splurge or time to change brands? Just before the Air India crash, did India avert another deadly mishap? Can Indian IT protect its high valuation as AI takes centre stage? 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Time of India
09-07-2025
- Business
- Time of India
Why a BRICS currency and de-dollarisation are not in India's interest
When the US President Donald Trump described BRICS as pursuing an 'anti-American' agenda and threatened member countries with additional tariffs – possibly up to 10 percent – if they sought to build an alternative financial system to the US-led global order, it reflected a perception rather than a reality. Such rhetoric overlooks the broader transformation in the global economic architecture. BRICS, now expanded to 11 countries (Brazil, Russia, India, China, South Africa, Saudi Arabia, Egypt, United Arab Emirates, Ethiopia, Indonesia, and Iran) and comprising 45 percent of the global population and around 35 percent of global GDP, is not an inherently adversarial bloc. It is a reflection of the multipolar world that is emerging and seeks to create space for a more inclusive and balanced global order. Its evolution is aimed less at weakening the United States and more at amplifying the voice of the Global South in institutions that have traditionally favoured a few. The real strategic anxiety for Western-led institutions stems from BRICS' push for financial reform and discussions around de-dollarisation. The proposal of a BRICS currency by the Brazilian president in 2023 attracted attention, but no consensus has been reached among member countries. A shared currency faces serious practical hurdles. BRICS is a multi-regional, heterogeneous grouping whose members come from vastly different political systems and economic landscapes. Relations among some member states are not entirely smooth either, ranging from strategic competition to transactional partnerships. Moreover, unlike the Eurozone which evolved into a monetary union with policy coordination, BRICS lacks a common economic zone, a central fiscal authority, or even a network of free trade agreements across its members. These structural inconsistencies make the idea of a unified BRICS currency aspirational rather than immediately feasible. The most tangible form of financial cooperation under BRICS so far is BRICS Pay, a cross-border payment mechanism launched in 2018 to reduce dependence on the SWIFT network. Yet even this initiative remains underdeveloped and largely supplementary to existing systems. Former Reserve Bank of India Governor Shaktikanta Das described the use of local currencies in trade as a risk-management tool rather than a genuine push toward de-dollarisation. External Affairs Minister Dr. S. Jaishankar echoed this sentiment in October 2024, stating clearly that India 'has never been for de-dollarisation' and that 'there is no proposal to have a BRICS currency.' These official positions reaffirm India's pragmatic stance toward the evolving financial narrative within BRICS. The most pressing technical challenge lies in pegging a hypothetical BRICS currency. Currencies like the Chinese yuan or renminbi, the Russian rouble, and the UAE dirham are more likely to be chosen as benchmark anchors because of their high levels of floating liquidity and circulation in global trade. The Indian rupee, by contrast, is still relatively under-internationalised and would have a limited role in determining the value of such a currency. If pegged predominantly to the more robust currencies of other BRICS economies, the new BRICS currency could diminish the relative value of the rupee. This would weaken India's monetary leverage and raise the cost of external transactions, especially when such a currency would be limited for use within BRICS markets and lack universal acceptability like the US dollar. India's trading patterns further reduce the appeal of a BRICS currency. Although India's trade with BRICS nations is substantial, a significant portion of its trade lies outside the bloc. The proposed BRICS currency would offer limited utility in transactions with non-member economies, and would thus be an inefficient substitute for the US dollar. The dollar's role as a global reserve currency and its near-universal acceptance across markets continues to serve India's trade interests more effectively than a restricted-use currency. Moreover, pegging to yuan, rouble or dirham would not only increase India's dependence on these specific economies but also provide disproportionate economic influence to China and Russia, countries with whom India has complex strategic relationships – though with Russia, India maintains a friendly strategic partnership that is rooted in history and shared interests. A BRICS currency would also challenge India's monetary sovereignty. For such a currency to function, macroeconomic policies would need to align – an improbable outcome given the divergent development models and national priorities of BRICS members. India has historically preferred to maintain policy autonomy, and being party to a common currency would curtail that flexibility, potentially undermining domestic growth and inflation control mechanisms. In essence, India would risk ceding economic space to geopolitical competitors under the guise of collective financial reform. India's position on de-dollarisation has also been carefully measured. Rather than pursuing wholesale abandonment of the US dollar, India has explored bilateral and limited local currency trade mechanisms, particularly with countries facing dollar shortages. Such arrangements help maintain trade momentum in the short term but are not designed to challenge the dollar's dominance. They are adaptive rather than transformative. Even within the BRICS framework, India has refrained from endorsing any sweeping move away from the dollar. Its foreign policy approach is rooted in strategic autonomy and pragmatism, not ideological alignment against the West. This does not mean India is unwilling to reform the global financial system. On the contrary, India has consistently advocated for greater representation of the Global South in Bretton Woods institutions such as the IMF and the World Bank. The demand is for a more inclusive and fair institutional framework that gives countries like India a greater say in global financial governance, rather than for a separate bloc-based architecture. India's priority is to democratise decision-making within existing structures, not dismantle them. In this, the BRICS platform can play a constructive role as a voice for global equity but not necessarily as a challenger to the dollar. Another limitation of the BRICS currency proposal is its potential to increase financial volatility rather than reduce it. Aligning with highly fluctuating currencies such as the rouble or yuan exposes India to risks stemming from external geopolitical developments. For instance, sanctions on Russia or capital controls in China would have ripple effects on a BRICS currency, pulling India into crises not of its own making. Similarly, the dirham's value is closely tied to energy market volatility, something India would prefer to avoid anchoring its currency to. The relatively stable dollar still provides India with a safer and more predictable trading environment. Despite this, there is space for cooperation within BRICS on financial innovation. Cross-border digital payment systems, improved financial transparency, and coordinated efforts to reduce transaction costs in South-South trade are achievable goals. These do not necessitate a common currency. Local currency trading, when conducted in a controlled and transparent manner, could improve resilience for BRICS members during periods of external shocks. However, any initiative that threatens to undermine India's economic sovereignty or binds it to unevenly matched partners would be counterproductive. India is also cautious about deepening financial integration with countries like China and Russia through a common currency. Political and military tensions with China and transactional complexities with other BRICS partners mean that India would be wary of any economic arrangement that could tilt strategic leverage in favour of these nations. Additionally, the fact that India does not have substantial local currency trade agreements even with major BRICS players like China and Russia underlines its discomfort with the idea. A controlled bilateral engagement is preferable to a wholesale reordering of its trade ecosystem. The United States' threats of punitive tariffs and aggressive protectionist measures based on laws like the International Emergency Economic Powers Act may generate headlines but will do little to prevent the organic evolution of multipolar economic partnerships. In fact, such actions may hurt American exporters and producers more than they dissuade countries from seeking alternative arrangements. At a time when global economic cooperation is key to recovery and growth, punitive measures are likely to be seen as regressive and self-defeating. Ultimately, BRICS is a platform that enables India to pursue multilateral diplomacy and elevate the concerns of the Global South. It is not a vehicle for establishing an economic order dominated by a few powerful states, nor should it become one. India's interest lies in maintaining strategic autonomy, preserving its monetary flexibility, and engaging with the world through dialogue and innovation. De-dollarisation and a BRICS currency do not serve these objectives. For India, the challenge is not to find alternatives to the dollar but to make the global financial architecture more inclusive and fair. And that begins not with new currencies, but with structural reform of existing institutions. In conclusion, while BRICS has evolved into a meaningful global platform, the notion of a shared currency or coordinated de-dollarisation lacks coherence and utility for India. The Indian economy thrives on diversity, flexibility and openness. Tying its fate to a new and untested monetary experiment would undermine the very strategic space it has worked so hard to preserve. For India, the future lies not in rejecting the dollar, but in reshaping the financial world to reflect a more balanced and equitable order where all voices are heard, and none dominate. Facebook Twitter Linkedin Email Disclaimer Views expressed above are the author's own.
Time of India
26-06-2025
- Business
- Time of India
Changes to IBC Finalised After PMO Approval
The corporate affairs ministry has finalised amendments to the Insolvency and Bankruptcy Code (IBC), following approval by the Prime Minister's Office (PMO), people with knowledge of the matter said. This comes after months of deliberations and is aimed at expediting the resolution of bankrupt firms and bolstering recoveries by creditors. The proposed amendments include a framework for each of the three types of bankruptcy resolutions under the IBC—creditor-led resolution, cross-border insolvency and corporate group bankruptcy. These changes are the latest by the Centre since 2021 as it seeks to strengthen the code, said the people cited. Between its launch in May 2016 and 2021, the IBC had been amended six times to respond to emerging challenges in resolving bankrupt firms. The government had since then refrained from further tinkering to allow the bankruptcy ecosystem to take root. In a meeting on June 6 chaired by Shaktikanta Das, principal secretary to Prime Minister Narendra Modi, the changes were discussed in detail, one of the people told ET. Accordingly, the ministry will move a cabinet note shortly following approval by finance and corporate affairs minister Nirmala Sitharaman, aiming to introduce the amendments in the upcoming monsoon session of parliament starting July 21, they said. Das is former governor of the Reserve Bank of India. However, the amendments are unlikely to include any provision aimed at avoiding a repeat of the situation that arose after the Supreme Court, in May, scrapped JSW Steel's ₹19,700 crore acquisition of Bhushan Power and Steel four years ago, flagging violations of rules or processes. This is because the apex court had upheld the integrity and intent of the IBC and underscored the need to abide by prescribed legal processes on the part of all stakeholders, said the people cited. However, regulations could be changed to ensure IBC processes are followed in letter and spirit during acquisitions, they said. Changes in regulations won't require parliamentary approval. Creditor-led resolution: The creditor-led resolution framework will largely involve out-of-court arrangements. This will lower the workload of the National Company Law Tribunal (NCLT) by enabling the committee of creditors to take on greater responsibility and expedite stressed asset resolution , ET has reported. Cross-border insolvency: In a change of the earlier plan, the government now intends to introduce the cross-border insolvency framework under the IBC, the people said. This will be tailored around a model United Nations law and aim to ensure easier access for creditors to overseas assets of stressed companies. Such a framework would enable India to seek cooperation from foreign countries to bring defaulters' assets there under consideration for insolvency proceedings. Group insolvency: The ministry will also introduce the 'voluntary' group insolvency framework that will facilitate a joint resolution of stressed entities of a domestic corporate group, given the interconnected nature of their operations. ET had earlier reported that the framework could empower the committees of creditors of various bankrupt companies of a group to decide if they need to join hands to speed up resolution and maximise gains or pursue the processes separately. It will apply only to a group's bankrupt companies and won't extend to its solvent entities. Currently, resolutions of individual entities of a group are pursued separately by their respective creditors. A proper group insolvency framework was necessitated after the interconnected nature of group companies had delayed resolution in a few cases, such as those of Videocon, Era infrastructure, Lanco, Educomp, Amtek, Adel, Jaypee and Aircel.
Time of India
26-06-2025
- Business
- Time of India
Changes to IBC finalised after months of talks, PMO approval
The corporate affairs ministry has finalised amendments to the Insolvency and Bankruptcy Code (IBC), following approval by the Prime Minister's Office (PMO), people with knowledge of the matter said. This comes after months of deliberations and is aimed at expediting the resolution of bankrupt firms and bolstering recoveries by creditors. The proposed amendments include a framework for each of the three types of bankruptcy resolutions under the IBC — creditor-led resolution , cross-border insolvency and corporate group bankruptcy. The new frameworks These changes are the latest by the Centre since 2021 as it seeks to strengthen the code, said the people cited. Between its launch in May 2016 and 2021, the IBC had been amended six times to respond to emerging challenges in resolving bankrupt firms. The government had since then refrained from further tinkering to allow the bankruptcy ecosystem to take root. In a meeting on June 6 chaired by Shaktikanta Das, principal secretary to Prime Minister Narendra Modi, the changes were discussed in detail, one of the people told ET . Accordingly, the ministry will move a cabinet note shortly following approval by finance and corporate affairs minister Nirmala Sitharaman, aiming to introduce the amendments in the upcoming monsoon session of parliament starting July 21, they said. Live Events Das is former governor of the Reserve Bank of India. However, the amendments are unlikely to include any provision aimed at avoiding a repeat of the situation that arose after the Supreme Court, in May, scrapped JSW Steel's ₹19,700 crore acquisition of Bhushan Power and Steel four years ago, flagging violations of rules or processes. This is because the apex court had upheld the integrity and intent of the IBC and underscored the need to abide by prescribed legal processes on the part of all stakeholders, said the people cited. However, regulations could be changed to ensure IBC processes are followed in letter and spirit during acquisitions, they said. Changes in regulations won't require parliamentary approval. Creditor-led resolution The creditor-led resolution framework will largely involve out-of-court arrangements. This will lower the workload of the National Company Law Tribunal (NCLT) by enabling the committee of creditors to take on greater responsibility and expedite stressed asset resolution , ET has reported. Cross-border insolvency In a change of the earlier plan, the government now intends to introduce the cross-border insolvency framework under the IBC, the people said. This will be tailored around a model United Nations law and aim to ensure easier access for creditors to overseas assets of stressed companies. Such a framework would enable India to seek cooperation from foreign countries to bring defaulters' assets there under consideration for insolvency proceedings. Group insolvency The ministry will also introduce the 'voluntary' group insolvency framework that will facilitate a joint resolution of stressed entities of a domestic corporate group, given the interconnected nature of their operations. ET had earlier reported that the framework could empower the committees of creditors of various bankrupt companies of a group to decide if they need to join hands to speed up resolution and maximise gains or pursue the processes separately. It will apply only to a group's bankrupt companies and won't extend to its solvent entities. Currently, resolutions of individual entities of a group are pursued separately by their respective creditors. A proper group insolvency framework was necessitated after the interconnected nature of group companies had delayed resolution in a few cases, such as those of Videocon, Era Infrastructure, Lanco, Educomp, Amtek, Adel, Jaypee and Aircel.
Time of India
20-06-2025
- Business
- Time of India
RBI eases norms for loans to projects like roads and ports
MUMBAI: RBI has eased regulations for project financing, which will make it less expensive for lenders to provide loans for infrastructure and industrial projects like roads, ports and power plants. The move acknowledges varying risk levels across sectors. The regulator has finalised its project finance guidelines, effective Oct 1, 2025, offering more flexible and sector-specific norms. Key changes include reduced general provisions for under-construction and operational projects. Penalties for project delays have also been eased. In the earlier draft, a delay beyond two years (infrastructure) or one year (non-infrastructure) attracted a 2.5% provision. Now, it's reduced to about 0.4% and 0.6% per quarter of delay, respectively. Projects financially closed before Oct 1, 2025, are exempt - unless there's a credit event or major loan restructuring. Instead of a flat 5% provision, commercial real estate (CRE) projects need 1.25% during construction and 1% when operational; CRE-residential housing requires 1% and 0.75%, while others need 1% and 0.4%. The definition of credit events is now clearer, excluding vague clauses like "NPV (net present value) diminution." by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Giao dịch CFD với công nghệ và tốc độ tốt hơn IC Markets Đăng ký Undo It focuses on tangible signs like default, DCCO (date of commencement of commercial operations) extension, or financial stress. RBI has also simplified delay categorisation: Infrastructure projects can defer DCCO by up to three years; non-infra, including CRE and CRE-residential housing, by two. Also, financial closure means 90% of funding is legally committed, with regulatory approvals tied to milestones instead of closure date - offering more realistic compliance. The overall framework is more practical, aiding developers and lenders alike. The earlier draft norms were announced by then RBI governor Shaktikanta Das. His successor, Sanjay Malhotra, had announced that the norms would not enforced in FY25. Commercial banks with substantial project finance portfolios would have faced a sharp rise in provisioning requirements, directly impacting their capital adequacy and profitability had RBI stuck to the earlier provisioning norms. Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), which together hold more than Rs 16 lakh crore in project loans, were highlighted as among the most exposed to these draft norms Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
