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Tuesday, January 17, 2017

Interesting readings

What the demonetisation episode tells us about offshore currency markets by Sargam Jain and Anjali Sharma in Mint, January 17, 2017.

Reserved Bank of India by Ila Patnaik in Indian Express, January 14, 2017.

A vibrant market for debt would cut off a vital source of illicit political funding by T K Arun in Economic Times, January 11, 2017.

Note ban and the allure of authoritarian populism by Ashoka Mody & Michael Walton in Business Standard, January 10, 2017.

Strategy for 2017 by Ajay Shah in Business Standard, January 9, 2017.

The American dream is losing its charm among graduates of India’s elite IIT Bombay by Ananya Bhattacharya in Quartz India, January 4, 2017.

Near-term change, long-term effects by Somasekhar Sundaresan, January 5, 2017.

Sebi seeks review of algo trading guidelines by Jayshree P. Upadhyay in Mint, January 2, 2017.

People are standing in queue because they think there is something good in it - PM has taken that risk by S Gurumurthy in Times of India, December 30, 2016.

How Amazon innovates in ways that Google and Apple can't by Timothy B. Lee in Vox, December 28, 2016.

A beast, unleashed by Shubhankar Dam The Week, December 25, 2016.

UPA government also proposed it, we said no by K.C. Chakrabarty in The Hindu, December 2, 2016.

Set the Tone at the Top by Ashraf Khan in International Monetary Fund, December 2016.

Monday, January 16, 2017

What does the tax data tell us about the state of the economy?

by Suyash Rai.

One of the most interesting questions in Indian macroeconomics today is: how are we faring since late 2016? In this article, I seek to analyse data on tax revenues and obtain some clues about the performance of the economy.

In a press release published on January 9, the central government reported the following increases in tax collections during April-December 2016, compared to the corresponding period of previous year:

  1. Central excise duty: 43 percent.
  2. Service tax: 23.9 percent.
  3. Customs duty: 4.1 percent.
  4. Corporation tax: 4.4 percent.
  5. Income tax: 24.6 percent.

These are large values. Holding other things constant, they suggest buoyant economic activity. However, when looking at tax data, we have to look at the extent to which other things are indeed constant. When analysing tax data, in order to read the state of the macroeconomy, we need to adjust for the part of the tax revenues which are on account of 'Additional Revenue Mobilisation' (ARM). Two kinds of ARM are:

  1. An increase in tax rate: additional revenues due to higher rate do not indicate robustness of the underlying activity.
  2. An administrative measure: additional revenues from one-time administrative measures (eg. a tax amnesty scheme) may not reflect the underlying economic activity.

Let us walk through the major taxes, and see what we can tell, and what we do not know.

Excise duty

The biggest increase in tax collection has come from excise duty. The collection during April-December 2016 was 43 percent higher than the corresponding period in 2015. Collection grew by 45 percent in April-October, 33.7 percent in November, and 34.8 percent in December, compared to the corresponding periods of previous year.

Excise duty rates during the reference period

Were the rates constant? Between April-December 2015 and April-December 2016, there have been certain changes in excise duties. Basic excise duties on these products were increased in five steps between November 6, 2015 and January 30, 2016. The detailed notifications can be found on the CBEC website. The cumulative impact of these increases is:

  • Unbranded petrol: increased from Rs.5.46 to Rs.9.48 per litre
  • Branded petrol: increased from Rs.6.64 to Rs.10.66 per litre
  • High speed diesel: increased from Rs.4.26 to Rs.11.33 per litre
  • Other diesel: increased from Rs.6.62 to Rs.13.69 per litre

Taxation of petroleum products is unfortunately the backbone of India's excise duty collection; we have failed to build a more broad-based indirect tax system. In 2015-16, the total excise duty (including cesses) collected was Rs.2,84,142 crore. From this, about Rs.1,94,061 crore, or 68.3 percent, was from crude oil and petroleum products (including cess on crude oil).

The increases in the specific rates for the four products would thus have an important impact upon the overall excise duty collections. Consider the excise duty on unbranded petrol. Since five rounds of rate increases happened between November 2015 and January 2016, when we compare collections in April-December 2015 versus April-December 2016, we are comparing periods with different applicable rates. During April-December 2015, the basic excise duty per litre on unbranded petrol was Rs.5.46 between April 1 and November 6, Rs.7.06 from November 7 to December 16, and Rs.7.36 from December 17 to December 31. However, throughout Apri-December 2016, the basic duty per litre of unbranded petrol was Rs.9.48. So, while comparing collections during these two periods, we need to deduct the additional revenue due to the higher rates.

Increase in collection during April-October

A press release on December 9, 2016 reported the indirect tax (excise duty, service tax, and customs) collection with and without ARM. During April-October 2016, the growth in indirect tax collection with ARM was 26.6 percent, while without ARM it was 8 percent. So, the total ARM was 18.6 percent of indirect tax collection during the same period of previous year. This is Rs.71,315 crore.

To the best of my knowledge, there has been no ARM in customs. ARM in service tax collections can be estimated by comparing applicable rates during the two periods being considered. During April-October 2015, the applicable rate for April and May was 12.36 percent, and it was 14 percent for June-October. So, the average rate during the period was 13.53 percent. During April-October 2016, the rate was 14.5 percent for April and May (Swachch Bharat Cess of 0.5 percent was introduced in November 2015), and 15 percent for June-October (Krishi Kalyan Cess of 0.5 percent from June 1, 2016). So, the average rate was 14.86 percent. The estimated increase in service tax collection due to ARM was (14.86-13.53)/13.53 percent = 9.8 percent of collection during corresponding period of previous year. This is Rs.11,059 crore. So, the remaining ARM, i.e. Rs.60,256 crore is estimated to have come from excise duty increases. Since the total increase in excise duty collection during April-October 2016 was Rs.66,485 crore, the increase without ARM was Rs.6229 crore, or 4.22 percent higher than excise duty collection in April-October 2015 (Rs.1,47,670 crore).

Increase in collection during November and December

During November 2016, the growth in indirect tax collection with ARM was 23.09 percent, while without ARM it was 8 percent. This suggests that, in November 2016, indirect tax collection from ARM was 15.09 percent of indirect tax collection in November 2015. This is Rs.8259 crore. Customs collections had no ARM. The effective service tax rate during November 2015 can be assumed at 14.25 percent, as half of the month had 14 percent rate (effective from June 1 to November 15, 2015) while the other half had 14.5 percent rate (0.5 percent Swachch Bharat Cess introduced on November 15, 2015). In November 2016, the rate was 15 percent (including Krishi Kalyan Cess of 0.5 percent). So, the ARM in this November's service tax collection is estimated to be (15-14.25)/14.25 percent = 5.26 percent of service tax collection in November 2015 (Rs.14,870 crore). This is about Rs.782 crore. Deducting this, we get Rs.7477 crore of ARM for excise duty in November. The total reported increase in excise duty collection in November 2016 was Rs.7477 crore. So, the increase in excise duty collection in November without ARM is estimated to have been zero. This suggests a deceleration from 4.22 percent growth in the preceding months..

Since these are nominal values, in real terms, collection may have declined in November. Excise duty becomes due at the time goods leave the factory. One did not expect any significant demonetisation impact on excise duty collection for November, as production and factory clearance schedules for the month were not likely to have been significantly affected by a decision taken in second week of the month. We saw this in the auto sector data, where November data showed a decline in sales but an increase in production, while the December data shows a decline in both sales and production. The latest IIP numbers, which show an increase in industrial production in November, also confirm this. So, the estimate of excise duty collection without ARM in November is surprising. Further, since retailers of petroleum products were allowed to accept old notes, the impact on these products should have been lower. So, to the extent increase in excise duty collection is an indicator of underlying economic activity, the news from November may be worse than expected.

It is difficult to make a reasonable estimate of excise duty collection without ARM in December, because, unlike the press release on December 9, the press release on January 9 does not include details about ARM, not even in the aggregate. When government releases December's data about excise duty collected without ARM, we can do this analysis for December.

Increase in excise duty collection (in percent)
April-Oct Nov Dec
With ARM
45 33.7 34.8
Without ARM (estimate)
4.22 0

Service tax

During April-December, 2016, service tax collections were up 23.9 percent compared to the corresponding period last year. During April-October, the increase was 27 percent, while it decelerated to 15.5 percent for November and 3.67 percent for December. This deceleration is significant, but we need to understand the increase without ARM.

Service tax rates during the reference period

Service tax rate has been increased thrice during the reference period

  1. June 1, 2015: rate increased from 12.36 percent to 14 percent
  2. November 15, 2015: Swachh Bharat Cess of 0.5 percent took the rate to 14.5 percent.
  3. June 1, 2016: Krishi Kalyan Cess of 0.5 percent took the rate to 15 percent

Increase in collection during April-October

In the section on excise duty, I estimated that ARM for service tax during April-October was 9.8 percent of service tax collection during the corresponding period of previous year. The overall increase in service tax collection in April-October was 26.9 percent. So, the increase without ARM would have been about 17.1 percent.

Increase in collection during November and December

In November 2016, collection increased by 15.52 percent compared to November 2015 - from Rs.14,870 crore Rs.17,178 crore. In the previous section, I estimated that about Rs.782 crore of service tax collection in November 2016 may have been on account of ARM. After deducting this ARM from collection in November 2016, the increase without ARM was 10 percent.

The increase in service tax collection in December 2016 (Rs. 22,449 crore) was 3.67 percent higher than that in December 2015 (Rs.21,655 crore). Since, the service tax rate applicable in December 2015 was 14.5 percent, while that in December 2016 was 15 percent, ARM is estimated to have led to 0.5/14.5 percent = 3.45 percent increase in service tax collection in December. So, in this estimate, the increase in service tax collection without ARM was 0.22 percent. If this analysis is correct, it shows a significant deceleration in rate of increase in service tax collection without ARM: from 17.1 percent in April-October, to 10 percent in November, to 0.22 percent in December.

Increase in service tax collection (in percent)
April-Oct Nov Dec
With ARM
26.9 15.52 3.67
Without ARM (estimate)
17.1 10 0.22

Customs duty

During April-December 2016, customs duty collection has increased by 4.1 percent, compared to the same period in 2015. During the corresponding period in previous year, the growth in collection was 17 percent. For November 2016, collection increased by about 16 percent. Partially, this may have been because this year Diwali was in October, while last year it was in November. Customs collections are mostly done on working days. November 2015 had fewer working days than November 2016. This effect might explain a part of the increase. Still, growth in customs collections in November was significant. This is along expected lines, as import orders usually do not get cancelled with a short notice. However, for the month of December, the customs collection was 7.6 percent lower than the same month in 2015. It is too early to say what this decline means. In the past also, there have been months when customs collections declined even when there was no obvious explanation.

Corporation tax

Corporation tax collection during April-December was 4.4 percent higher than the corresponding period last year. Last year, during the same period, the growth in corporation tax collection was 11.74 percent. Collection in December 2016 was 4.7 percent lower than that in December 2015. December is one of the months for deposit of advance taxes. This low collection may indicate that firms have revised their profit forecasts downwards. However, it is difficult to draw a conclusion, as there may be other explanations. For instance, disproportionate refunds may have been made in December. We do not have the data to draw a conclusion.

Income Tax

During April-December, income tax collection was 24.6 percent higher than that in the corresponding period of 2015. However, a key factor here is the income declaration scheme that ended on September 30, 2016, and had mandated payment of tax, surcharge and penalty by November 30, 2016. The expected tax inflow from the scheme was about Rs.30,000 crore. This is a form of additional revenue mobilisation. Hence, unless we know the increase without this ARM, it is difficult to interpret the number. For instance, if Rs. 25,000 crore was collected under the scheme, the increase in income tax collection during April-December would be just over 8.3 percent.


The analysis presented here suggests that the reading of tax collection numbers as signifiers of robust economic activity may be too optimistic. I have had to estimate some of the numerical values above because the data releases on tax collections have been parsimonious on details. This is especially true of the release on January 9. The consistent inclusion of details about additional revenue mobilisation for different taxes for each month would make it easier to conduct economic analysis using tax data.

The author is a researcher at National Institute of Public Finance and Policy. Views expressed here are personal.

Friday, January 13, 2017

South Africa vs. India: alternative paths to financial reforms

by Radhika Pandey and Smriti Parsheera.

As finance evolves, so must the legal systems designed to govern it. These changes often come about in firefighting mode. As an example, a discord between IRDA and SEBI on Unit Linked Insurance Plans led to a hasty amendment to the Reserve Bank of India ("RBI") Act to create a joint committee mechanism to resolve regulatory jurisdiction issues. The outburst of ponzi schemes and unregulated financial activities has led to attempts at legal reforms concerning unregulated deposit taking activities.

While there is a case for addressing felt needs, one at a time, there is also a need for mapping the big picture of financial law and the organisation diagram of financial agencies. This design work requires deep thinking based on long years of experience, research and debate. It is not a quick response to a crisis.

There are, thus, three ways through which the financial regulatory apparatus can evolve:
  1. Addressing a felt need that arises at a point of time, without thinking on a system scale; or
  2. A full redesign of the financial regulatory landscape through a comprehensive financial sector law; or
  3. A full scale research and design effort, which establishes a strategy for reform, but this is implemented through numerous small steps.
By default, most countries pursue Method 1. It allows for prompt action to fix an immediate issue. This comes with the risk of missing the woods for the trees, with being stuck with financial regulatory structures that are decades out of date. However many countries have, from time to time, also followed the second or third paths.

In this article, we examine the recent South African and Indian approaches to large-scale financial reform. South Africa is pursuing Method 2 while India is pursuing Method 3. Our emphasis is on the policy process employed in both countries. We note, in passing, that there are remarkable similarities in the ideas shaping their financial reform, but this article is about policy process and not substantive content.

South Africa's reform process

South Africa initiated a formal review of its financial sector in 2007, which culminated in the release of the report on A safer financial sector to serve South Africa better ("SA Report") by the National Treasury in February 2011. Prepared in the wake of the global financial crisis, this report strongly emphasised stability as a key policy objective, along with the goals of consumer protection, expanding financial inclusion and combating financial crime.

In July 2011, the South African Cabinet approved the SA Report's proposal to shift to a "twin peaks" system of financial regulation, which would separate prudential regulation from market conduct supervision. This was followed by a budget announcement to that effect in the subsequent year. In February, 2013, the Financial Regulatory Reform Steering Committee, comprised of representatives from South Africa's three key financial regulatory institutions - Reserve Bank, Financial Services Board and National Treasury, published a report on Implementing a twin peaks model of financial regulation in South Africa. This document, along with the SA Report, formed the basis for widespread consultations and preparation of a draft legislation to give effect to the proposed reforms.

Building on these documents, the Treasury put together the first draft of the Financial Sector Regulation Bill ("FSR Bill") in December 2013, followed by a second version in December 2014. Comments were invited at each stage, and public workshops were held to spread awareness about the proposals. A provision-wise summary of the comments received from stakeholders and the National Treasury's response to them was placed in the public domain.

The FSR Bill was then tabled in Parliament in October 2015, and referred to the Standing Committee on Finance ("SCOF"). SCOF held yet another round of public consultations between November 2015 and May 2016 and the Treasury declared its response to the comments received. In parallel, the government also released an Impact Study Report setting out the motivation behind the FSR Bill; the costs and benefits of its implementation for stakeholders and the government; measures for managing risks; and summary of the expected impact on national priorities.

Since then, the Treasury has published further revised drafts of the FSR Bill on 21st July 2016 and 21st October 2016, taking into account the matters raised by the Standing Committee as well as various stakeholders. South Africa's National Assembly voted on the Bill in December 2016 and it will now be placed before the National Council of Provinces.

The FSLRC's reform agenda

India's work in financial reform was proceeding in similar years. In 2011, the Ministry of Finance setup the Financial Sector Legislative Reforms Commission ("FSLRC") with the mandate to review and recast the legal and institutional structures of the Indian financial system.

FSLRC released a report and a draft law in March 2013. This draft law is termed Indian Financial Code (IFC), v1.0. This was refined into IFC version 1.1 that was put out for public comments in July 2015.

IFC has not been tabled in Parliament. A large number of steps have, however, put this strategy in action:
  1. IFC envisages many new elements of the financial regulatory architecture. The Ministry of Finance adopted a `Task Forces' approach of setting up a group of wise people that would build the implementation strategy for setting up each new agency. Task Forces were set up for five financial agencies: the Public Debt Management Agency ("PDMA") under Dhirendra Swarup, Financial Sector Appellate Tribunal under N.K. Sodhi, Resolution Corporation ("RC") under M. Damodaran, Financial Data Management Centre (FDMC) under Subir Gokarn and then Financial Redress Agency (FRA) under Dhirendra Swarup. The FRA Task Force Report is open for public comments till 31st January 2017.
  2. IFC envisaged an objective for RBI -- inflation targeting -- and a shift in rate setting power from the Governor to the Monetary Policy Committee. This was achieved in two steps: the Monetary Policy Framework Agreement and then the amendments to the RBI Act through the Finance Act, 2016.
  3. The IFC chapters that established the RC were adapted into a standalone draft law and released for public comments.
  4. An interim cell has been set up within the Ministry of Finance in the run up to building a statutory PDMA.
  5. The appointments process for senior regulatory staff that is embedded in IFC has been implemented as the Financial Sector Regulatory Appointment Search Committee that will be used for all senior appointments in financial sector regulatory bodies.
  6. IFC envisages a unification of financial markets regulation. The number of financial markets regulators went down from three -- RBI, Securities Exchange Board of India ("SEBI") and Forward Markets Commission ("FMC") -- to two (RBI, SEBI) with the merger of FMC into SEBI through the Finance Act, 2015.
  7. IFC envisages that the power to issue capital control regulations should be with the Ministry of Finance. This was partially done, for non-debt flows, through an amendment to the Foreign Exchange Management Act, 1999 in May 2015.

Comparing the two pathways to reform

There is a clear difference in the way the financial reform story has unfolded in these two countries. In South Africa, the Treasury drafted and owned the report from the very start. They were able to stay focused on the basic idea. This however comes with its own costs. A complete recast of the financial regulatory framework, having wide-ranging implications, implies that considerable time needs to be spent on building consensus among stakeholders. This is illustrated by the fact that South Africa initiated the idea for reforms in 2007 but almost a decade later, they are yet to adopt a final law. Due diligence of stakeholder consultations, impact assessments, and publishing responses to comments to each step of a comprehensive code adds to the complexity of the exercise.

In the Indian case, there is greater policy uncertainty as one piece is being done at a time. There is no assurance that the full vision will unfold successfully. As a self-contained draft, the different parts of IFC 1.1 speak closely to one another. Its full effect can therefore be achieved only if this consistency is maintained. Picking and choosing specific parts for implementation casts a greater responsibility to ensure that the proposals being adopted are consistent, not just with the myriad set of existing financial laws but also with the full concepts of FSLRC's report. If even one or two components stray away from the original vision, there is a danger of getting messy outcomes. It also leads to a duplication of drafting efforts to ensure that each part is consistent with the whole.

But there are some advantages. It gives the Ministry of Finance the ability to pick one battle at a time. In India, there are severe constraints on State capacity. If all parts of IFC had to be implemented at the same time, the project management would likely face more difficulties.

The authors are researchers at the National Institute of Public Finance and Policy. They were part of the FSLRC research secretariat.

Friday, January 06, 2017

Measuring outputs v. outcomes: Did the restriction on foreign investment in Rupee-debt work?

by Anurag Dutt, Arpita Pattanaik and Bhargavi Zaveri.

A good policymaking process requires significant regulatory capacity. Before the policy is enacted, the State must (a) identify a market failure and an appropriate intervention to address it, (b) conduct a cost benefit analyis of the intervention, and (c) conduct an effective public consultation where the public knows about (a) and (b). Even after the policy is enacted, the policy, by itself, is merely an 'output'. After allowing for a reasonable lag for transmission, the State must identify whether the intended outcome of the policy has been achieved. For example, the intended outcome of the Insolvency and Bankruptcy Code (IBC) is to improve debt recovery rate in India. The IBC was enacted in May 2016 and most of its provisions were notified in November 2016. The IBC is an output. Allowing a medium term horizon for the impact to play out, an impact assessment exercise will be due in May 2020 to assess whether the recovery rates have improved since the notification of the provisions of the IBC. The impact on debt recovery rates would be the outcome. The effectiveness of IBC must be measured with reference to this outcome.

In the field of capital controls in India, we find that State interventions are almost never accompanied with the steps mentioned above (Burman and Zaveri (2016)). An ex-post impact assessment of interventions in this field, is unheard of. In this article, we conduct an ex-post impact assessment of an intervention in the field of capital controls.

The intervention

On 3rd February, 2015, RBI prohibited FPIs from investing in (a) debt instruments with a maturity period of less than three years (such as corporate bonds with less than 3 years maturity and commercial papers), and (b) money market and liquid mutual fund schemes (as these schemes invested in corporate debt with less than 3 years maturity). In this article, for ease of reading, we call (a) the debt instruments with a maturity period of less than three years, prohibited instruments"; and (b) the debt instruments with a maturity period of atleast three years, "eligible instruments". The restriction was effective from 4th February, 2015. However, FPIs were allowed to continue holding the prohibited instruments that they already held on 4th February, 2015. Also, no lock in period was imposed on the eligible instruments acquired by FPIs, that is, FPIs could invest in and sell bonds with a maturity period of atleast three years, well before they matured.

The RBI circular did not specify what the market failure was or what the intervention was intended to achieve, except that the intervention was to bring consistency between the rules for FPI investment in corporate bonds at par with FPI investment in Government securities. It was
not accompanied with a cost benefit analysis of the intervention, and it was not preceded by a public consultation process. We are not aware if RBI or the Central Government propose to undertake an ex-post impact assessment of this measure. In this article, we analyse what the intervention has achieved, more than a year after it was imposed.


Due to the absence of a specific desired outcome in the RBI circular, we relied on statements made by RBI to the press. These statements as well as our conversations with RBI employees on public forums since the intervention, indicate that the intervention was intended to 'nudge' FPI investment in long-term debt in India. Our analysis is, therefore, limited to the following questions:

  1. Question 1: Whether the regulatory intervention led to an increase in the FPI investment in long term corporate debt in India?
  2. Question 2: Whether the regulatory intervention led to any change in the behaviour of foreign portfolio investors in relation to long term corporate debt in India?

A snapshot of the size of Indian corporate bond market

Table 1 gives an overview of the size of the corporate debt market in India. Except for data on commercial paper (CP) issuances, data on the tenor of the debt instruments is not readily available in public domain. Hence, we use the size of the CP market as a proxy for the size of the short term debt market in India. The actual size of the short-term debt market would be larger. Table 1 shows that that CP issuances alone account for atleast 30% of the overall debt market in India.


(Rs. billion)

Total size CPs

2014-15 6026.38 1887.88
2015-16 7515.46 2596.61

Source: SEBI Annual Report (2015-16)

Description of data and methodology

We use the daily holdings data from NSDL to identify the debt instruments held by FPIs from January 2014 until March 2016. We then identify the tenor of the debt instruments by using the issue and expiry dates of each debt instrument held by each FPI during this period. With this data, we identify the change between (a) the percentage of eligible instruments held by FPIs during 12 months before the intervention; and (b) the percentage of eligible instruments during 14 months after the intervention. We take a long time-frame for the study. This helps filtering out the effect of other macroeconomic conditions and monetary policy changes that could have caused short term fluctuations in FPI participation in the Indian corporate debt market.


  1. Question 1: After the intervention, we find that there is a marginal increase of 0.47% in the annual average FPI investment in eligible instruments.

    The percentage of eligible instruments held by FPIs during the study period is shown in Fig. 1. The vertical line on 3rd February, 2015 is the date of the intervention. In the year immediately preceding the intervention, that is, from January 2014-January 2015, FPIs, on an average, held 5.9% of the total eligible instruments issued by Indian issuers. For the period of one year after the ban, that is, from March 2015-April 2016, the corresponding average was 6.37%. Thus, there was a nominal increase of 0.47% in the holding of eligible instruments by FPIs after the intervention.

    On 25th March, 2015, NTPC had issued eligible instruments to the tune of Rs. 10,306 crores, the largest ever issuance in terms of size by any private or public sector firm in India. We find that if we exclude the effect of the NTPC issuance, the nominal increase of 0.47% also disappears and the average eligible instruments held by FPIs after the intervention would have fallen by 5.1%.

  2. Question 2: We find that there is no change in the behaviour of FPIs in relation to their holding of eligible instruments, before and after the intervention. We observe that they continue to sell-off the eligible instruments held by them shortly after listing.

    From anecdotal conversations with market participants, we know that FPIs do not hold their local currency debt until maturity, especially where such debt is of a long-term nature. We notice this finding even in our data, as explained below.

    In November 2014, we see a steep incline in the percentage of eligible instruments held by FPIs in Fig.1. This is because of 85 new issuances of long term debt instruments between 6th November and 12th November, in which FPIs participated vigorously. At this time, FPIs end up holding almost 26% of the outstanding eligible instruments. Thereafter, there is a steep fall almost immediately to 11%. Even after the intervention, we see a similar trend. Fig. 1 shows that for one month after the prohibition was imposed, the proportion of outstanding long term corporate bonds held by FPIs remains constant at about 11%. Thereafter, beginning sometime in March 2015 and continuing until the end of April 2015, the proportion of outstanding long term bonds held by FPIs drops from 11% to 6%. On 25th March, 2015, NTPC had issued long term debt instruments to the tune of Rs. 10,306 crores, the largest ever issuance in terms of size by any private or public sector firm. Hence, we see a small spike in the proportion of outstanding eligible instruments held by FPIs at that time. However, just like the November 2014 decline, the spike dissipates almost immediately.

    The steep decline after the spike in November 2014 and in March 2015 may be due to two reasons: (a) FPIs may be redeeming bonds that have matured in November 2014 and March 2015 respectively; and/ or (b) FPIs may be selling bonds that they acquired in the spike immediately preceding the drop. To ascertain which of the two reasons led to the drop, we control for (a) the 85 issuances in November 2014; and (b) the NTPC issuance in March 2015, and re-plot the graph in Fig. 2. We observe that if we were to exclude the 85 issuances responsible for the spike in November 2014 and the NTPC issuance in March 2015, the proportion of FPI holdings of eligible instruments is nearly constant between 1% and 5%. In other words, there is no drop if there is no spike. This implies that the drop in November 2014 and March 2015 in Fig.1 can be attributed to the sale of long term corporate bonds by the FPIs.

    Thus, using two instances - one before the intervention and another after the intervention - we show that the behaviour of FPIs has remained the same pre and post the intervention. FPIs continue to flip their long term holdings, selling them almost immediately within 1 month of having bought them, and hold only a minute proportion of the total long term corporate bonds issued.

Fig 1: Percentage of eligible instruments held by FPIs

Fig 2: Percentage of eligible instruments held by FPIs net of 85 and NTPC issuances


An ex-post impact measurement exercise measures whether an
intervention has achieved the intended outcome. It helps analyse whether any changes must be made to the intervention or the manner of its implementation to make it more effective. For example, if an ex-post impact assessment of the IBC in 2020 shows that there has been no improvement in the debt recovery rates in India, it should be a sufficient ground to re-visit the design of the law. It is to facilitate such an exercise that the Indian Financial Code drafted by the Justice Srikrishna-led Financial Sector Legislative Reforms Commission, requires every regulation to be reviwed three years after its enactment.

Our ex-post impact analysis of the intervention of restricting FPI investment in corporate debt with a maturity period of less than three years, finds no evidence of having achieved its intended outcome of channelising foreign capital from the short to long end of the corporate bond market. As shown above, neither do FPIs significantly increase their participation in long term bond holdings as a result of the intervention nor do they alter their behaviour by holding the long term corporate debt securities until maturity.

We find that an attempt to centrally plan the allocation of foreign capital inflows, did not have the intended effect on atleast one occasion. On the other hand, the intervention withdrew foreign capital from the most liquid part of the Indian debt market. Pandey and Zaveri (2016) show that a substantial proportion of the bond issuances in similarly placed economies, such as Indonesia and South Korea, belong to the maturity bracket of one-three years. None of these economies prohibit foreign portfolio investment in local currency debt of this maturity bracket. In India too, before the intervention, there was significant FPI interest in the bond market with a maturity profile of less than three years. This is evident from the rapid utilisation of the debt limits for CPs. The reason for this is simple. It is easier to price currency and credit risk in debt of this maturity profile. For small to mid-sized Indian companies which are not known to foreign investors, it is easier to raise debt in this maturity profile from foreign investors. Globally, being able to raise foreign debt in local currency is a boon for debtors, as the currency risk is taken by the foreign investor. At a time when India is struggling to set up its corporate bond market, the intervention has resulted in depriving the relatively more liquid part of the market of significant participation.


Regulatory Responsiveness in India: A normative and empirical framework for assessment, Anirudh Burman and Bhargavi Zaveri. IGIDR Working Paper IGIDR Working Paper WP-2016-025, October 2016.

Radhika Pandey and Bhargavi Zaveri, Time to inflate economy's spare tyre, Business Standard, 18th April, 2016.


The authors thank Susan Thomas and Anjali Sharma for useful discussions.

Should we be uploading FIRs on the internet?

by Vrinda Bhandari, Renuka Sane and Bhargavi Zaveri.

On 7th September, 2016, the Supreme Court in a widely reported judgment, directed that copies of all FIRs, except FIRs relating to sensitive offences, be uploaded on the police or State government websites. Several High Courts have also made a similar direction (2010 Delhi High Court, 2012 Orissa High Court , 2013 Punjab and Haryana High Court , and 2014 Himachal Pradesh High Court). These judgments, and the Supreme Court judgment in particular, were delivered in response to public interest litigations, in which the Petitioners contended that uploading copies of FIRs online would considerably ease the process of their retrieval and enable the accused to take appropriate legal action to remedy their grievances.

Police stations across the country have begun acting on this directive. The practice of uploading FIRs online reduces the costs associated with dealing with the police machinery on crime reporting. However, the unhindered ability to retrieve FIRs raises questions relating to a) the privacy of the accused, b) the possibility of abuse of information, and c) the possible prejudices arising from a mere insinuation of crime. In this article, we argue that in the absence of robust data release policies and security standards for retrieval of FIRs uploaded on the internet, a directive that is intended to benefit the accused, will end up prejudicing her.

Why does the accused require access to the FIR?

The FIR usually contains the identity of the complainant and the details of the alleged incident, including the role attributed to the accused. The right of the accused to obtain a copy of the FIR at the earliest stage, even before the commencement of trial, is directly linked to the need for an impartial investigation and her right to defend herself. There are three reasons why the accused should have access to the FIR at the earliest.

  1. By knowing the exact nature of the case against her, it enables the accused to defend herself.
  2. It enables the accused to apply for anticipatory bail (to avoid pre-trial detention) or bail (in case she has been arrested), especially before the police files the charge-sheet and the trial starts.
  3. It helps the accused avoid making any incriminating statements, thus safeguarding her constitutional protection against self-incrimination. Knowledge of the contents of the FIR give the accused an idea about the nature of investigation being conducted by the police, and avoid undue harassment.

In Indian law, the right of an accused to receive a copy of the FIR is codified under Section 207 of the Code of Criminal Procedure, 1973 (CrPC), which requires the Magistrate to furnish a copy of the FIR to the accused. Therefore, the CrPC, which governs criminal proceedings, contemplates that the accused receives a copy of the FIR only after a Magistrate has taken cognizance of the alleged offence. However, notwithstanding the scheme of the CrPC, the aforesaid judgments have now held that the an accused shall have almost immediate access to the FIR online, 24 hours after it has been registered by the police.

Part of the reasoning of the High Courts and the Supreme Court stems from the FIR being considered a "public document" under Section 74 of the Indian Evidence Act (see here, here, and here). The implication of a document being classified as a public document under the Evidence Act, is set out in Section 76 of the Evidence Act, which reads as under:

Every public officer having the custody of a public document, which any person has a right to inspect (emphasis supplied), shall give that person on demand a copy of it on payment of the legal fees therefor, ... .

Thus, the obligation of a public officer to furnish a copy of a public document (such as a FIR), is restricted to any person having a right to inspect the document. The provision does not state that a public officer must give a copy of a public document to *any* member of the public who pays the fees. This interpretation has been reaffirmed in several cases (See here, here, and here). These case-laws establish that the right to a public document under the Evidence Act, is limited to the interest a person has in it.

The qualification in the language of section 76 of the Evidence Act indicates that a person wishing to see a public document must demonstrate her right to do so, or her interest, in relation to the document asked for. The judgements which hold that FIR is a public document and must be uploaded on the internet, must take cognizance of this.

How do online FIRs help?

Uploading FIRs online eases the process of their retrieval by those who have a right to inspect them. This includes, most importantly, the accused, whose liberty is at stake once the criminal law has been set into motion. Uploading the FIR on the website of the police gives the accused notice of the case against her and enabler her to defend herself.

Online FIRs reduce the incentives for corruption, the costs of enforcing the right to access the FIR as codified under the CrPC (such as by filing applications in Court), and enable a more effective and efficient enforcement of rights under the law. Uploading FIRs online also helps the complainants and victims by reducing the chances that the original FIR will be tampered with, once it has been uploaded on the website. The exercise is thus beneficial to those directly linked with the complaint.

Ensuring easy digital access of the FIR also helps those individuals who might want to enter into ransactions/contracts with the accused, and want to verify her credentials. Such individuals may be said to have a right to inspect the FIR pertaining to the particular accused.

How can online FIRs hurt?

The benefits of online FIRs have to be juxtaposed against the possible costs. The problems relate to how the data is stored online, and how easy it is for parties to access it.

The costs of erosion of privacy through multiple small acts of surveillance and information collection, both by the State and private actors, has become the subject of policy debate, in India and across the world (Bhandari and Sane, 2016). The debate has also emphasised privacy as a shorthand for breathing space (Cohen, 2012). The ease of access of various details of the accused, complainant and scene of crime to unrelated parties, is problematic for two reasons:

  1. It erodes the privacy of the individuals involved. It does not respect their right to keep their personal lives private. Even as the Supreme Court debates on whether the right to privacy is a fundamental right under the Constitution of India, there appears to be no policy-reason for allowing the public acces to the details of the accused at the FIR-stage. The oft-used policy argument for open criminal proceedings applies to trials. Transparency to the public at the stage of the trial creates incentives for good behaviour on the part of the judges and all parties involved such as lawyers and witnesses (Shapiro 1951).

  2. It is possible that unhindered access to the personal data of the accused can potentially lead to mis-use of this data. This mis-use can occur because private actors use this information for commercial purposes, or just harassment, and lead to outcomes that are detrimental to the person. The mis-use can also occur because other branches of government can hold this information against them.

How does the current FIR policy fare?

It is not that considerations of privacy were completely ignored in the Supreme Court's order. The order did provide directions on how to treat "sensitive" cases. Only a police officer of the rank of Deputy Superintendent of Police or above can make a decision on whether to upload the copy of the FIR in lieu of its sensitive nature, and an accused always has the right to challenge this in Court.

Despite this, the current process of online FIRs is problematic. The first of the concerns relates to the idea of FIR being a public document under Section 76 of the Evidence Act. As explained in the previous section, public documents are only accessible to those who have a right to inspect them. This can be controlled in the offline world, where a person has to apply for a certified copy of a public document such as an FIR. However, in the digital world, once the FIR is online, anyone can search for this information (which includes some details about the residence and family of the accused), and use it as a tool of harassment and blackmail.

Second, the process and steps for retrieval are largely non-standardised, and have incorporated varied levels of security features. For example, if you wish to retrieve a FIR filed in a police station in Tamil Nadu, you need to key in the name of the accused, victim, or complainant along with a mobile number. You receive an OTP, which must be keyed in to be able to retrieve the FIR sought for. If you wish to retrieve a FIR filed in a police station in Delhi, you need to key in information such as the police station in which it was filed, the name of the accused, victim, or complainant, and if you know neither, then the FIR Number. Despite such barriers, it is fairly easy for complete strangers to retrieve copies of FIRs from the websites of the State police, with minimal time and effort. For instance, it is possible for a researcher to write a script to scrape this data off these websites without having to enter these details.

There is very little by way of uniform standards of the kind of information and the manner in which the FIRs are being made available online; the security protections in hosting such large swathes of data on unsecure, centralised servers; and the enforceability of such judicial directives.

Way forward

The cavalier attitude towards release of private data by the police leads to larger concerns of data release by government. We need to have better thought through data release policies. Issues such as who has access to data, in what form and how to secure such access, need to be resolved. In the case of health records, for example, we may not wish for everyone to have access to data, without permission from the person whose record is in question. In other cases, we may allow the public to have access, but with information of the key persons involved redacted. A debate on these questions has to take place in a universe where data that may have been acceptable to be publicly available offline, is now easily available online and we have to determine whether that makes a difference.


Bhandari, V., and R. Sane (2016), Towards a privacy framework for India in the age of the internet, NIPFP Working paper 179, October 2016.

Cohen, Julie (2012). What Privacy is For. In: Harv. L. Rev. 126, pp. 1904-1933

Harold Shapiro, Right to a Public Trial, 41 J. Crim. L. & Criminology 782 (1951)

The Law Commission of India, 185th Report on Review of the Indian Evidence Act, 1872, March 2003

Vrinda Bhandari is a practicing advocate in Delhi. Renuka Sane is a researcher at the Indian Statistical Institute, Delhi. Bhargavi Zaveri is a researcher at the Indira Gandhi Institute of Development Research, Mumbai.

Tuesday, January 03, 2017


Post-Doctoral Scholar/ Senior Researcher at the IIMB-RERI in Bangalore

Founded in 2012, the Indian Institute of Management Bangalore-Real Estate Research Initiative (IIMB-RERI) is a first of its kind research Initiative in the country. Engaged in the area of real estate research, the primary objective of the Initiative is to collect data and conduct scientific, cross disciplinary, publishable research that would also aid policy and decision making, involving all areas of housing and commercial real estate including land markets. The Initiative’s core focus areas are improving transparency, assessing and improving policy, leveraging technology and capacity building in the real estate sector.

The Initiative invites applications for the above two positions whose primary responsibilities would be to assist on research projects. The post-doctoral scholar is also expected to independently conceive and execute new research projects as well. Assisting research projects would involve data collection, organization, literature review, empirical analysis (using statistical software such as SAS and Stata) and writing. The candidates should be highly motivated to publish in top peer reviewed journals.

The ideal candidates would have a

  • Ph. D./Masters or equivalent in Finance/Economics/Public Policy from a recognised Institution and
  • Relevant research experience as evidenced in thesis work carried out in Institution and/or publication
The compensation will be at competitive rates for the right candidate. Interested candidates can send their resume with covering letter to Professor Venkatesh Panchapagesan at

The History-Internship at IIM-Ahmedabad

Purpose of Internship:

The Indian Institute of Management Ahmedabad (IIMA) has played a pioneering role in the field of business history in India and wishes to extend this legacy by engaging with a new generation of students and researchers. Interns are expected to assist history related research projects and also develop their own research ideas during the course of the internship. Interns will benefit from the vibrant campus life of IIMA and access to one of the best libraries on business and economic history in India. Among other features, the library also provides access to the digital Times of India Archive(1838-2006) and Financial Times Archive (1888-2010). They may also attend a course on business and economic history offered at theinstitute (Twitter Handle: HITCH@BizEconHist).


The ideal applicant is a Master's or PhD level student in History/Economics/Management/Law who is working on aspects of business and economic history of any region post-18th century. Students and researchers pursuing other degrees and professions, working in other fields of history or on other time periods are also encouraged to apply if they can demonstrate how they can contribute and learn during the internship. Applicants have to be highly motivated, enthusiastic and hard-working. Prior exposure to database management software (MS Excel, Open Office, etc.) is not mandatory but welcomed.

Internship Details:

The internship can take place anytime during the year for a period not exceeding two months. The Intern can avail internet and library facilities at the IIMA campus but will have to arrange for accommodation on their own outside the campus.


Selected Intern will be paid appropriate honorarium/stipend at the end of the internship and after the receipt of an internship projectreport as per the Institute norms.

Application Procedure:

Applicants must send an email to Prof. Chinmay Tumbe, IIMA, , with their CV, a written sample of at least 1,000 words and a letter of motivation indicating potential research ideas and a range of dates for the internship. A reference letter maybe requested from shortlisted candidates. There is no deadline for the internship application and applications will be considered on a rolling basis.


TheHistory Internship

Tuesday, December 27, 2016

Interesting readings

On what horizons will the de-monetisation shock play out? by Ajay Shah in the Business Standard, December 26, 2016.

Two litigations and a takeaway by Radhika Pandey and Bhargavi Zaveri in the Business Standard, December 26, 2016.

Open letter to technology companies from the Electronic Frontier Foundation. (You have to click on the link inside this page).

Cashless economy: A distracting mirage by P. Chidambaram in the Indian Express, December 25, 2016.

This government's modus operandi is constant distraction by Pratap Bhanu Mehta in the Indian Express, December 24, 2016.

Where smooth governance is masked failure by Somasekhar Sundaresan in the Business Standard, December 22, 2016.

Demonetisation may have cost banks Rs 3,000 cr per day by Nitin Sethi and Ishan Bakshi in the Business Standard, December 22, 2016.

What India Has Done To Its Money Is Sickening And Immoral by Steve Forbes in Forbes, December 22, 2016.

India's Bizarre War on Cash, editorial in The Wall Street Journal, December 22, 2016.

EU's highest court delivers blow to UK snooper's charter by Owen Bowcott in the Guardian, December 21, 2016.

A new window on Calcutta by Stanley Stewart, Financial Times supplement, December 20, 2016.

Now, police control room catches up with English, by Umesh Yadav in the Economic Times, December 19, 2016.

No one took notes by P Vaidyanathan Iyer in the Indian Express, December 19, 2016.

Kochi Bienalle looks poised to be an integral feature of the Indian culture calendar by T. K. Arun in the Economic Times, December 17, 2016.

Challenges in the Transition to the New Insolvency and Bankruptcy Code by Rajeswari Sengupta and Anjali Sharma in The Wire, December 15, 2016.

First clean up political funding to mount a credible attack on corruption by T K Arun in the Economic Times, December 14, 2016.

Revamping the Income Tax Appellate Tribunal by Pratik Datta, Surya Prakash B.S., Renuka Sane, in Mint, 13 December.

Back to the worst forms of central planning by Srinath Raghavan in Mint, December 12, 2016.

Demonetisation Will Likely Lead to a Protracted Economic Slowdown by Radhika Pandey and Rajeswari Sengupta in The Wire, December 12, 2016.

Modi's Note Ban May Spell Catastrophe for the BJP by Prem Shankar Jha in The Wire, December 11, 2016.

How to Deal With the Lies of Donald Trump: Guidelines for the Media by James Fallows in The Atlantic, November 28, 2016.

The War on Cash by Brett Scott in The Long and Short, August 19, 2016.

Defending Accounts Against Common Attacks by Martin Shelton.