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Mint Street Memos (MSM) is a series of documents that are in the form of brief reports and analysis on contemporary topics, prepared by the staff of RBI and Centre for Advanced Financial Research and Learning (CAFRAL), or drawn from one of the recent publications of the Bank.

May 2018

Examining Gross Domestic Product Data Revisions in India

An analysis of data revisions relating to national accounts aggregates in India shows a general bias towards upward revisions in growth rates relative to first releases or advance estimates (AEs). Thus, the AEs need to be supplemented with other high frequency indicators of real sector to arrive at a more realistic assessment of the state of the economy.

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April 2018

Impact of Increase in House Rent Allowance on CPI Inflation

This paper studies the impact of increase in house rent allowance (HRA), following recommendations of the 7th Central Pay Commission (CPC), on headline inflation. The HRA increase pushed up measured housing inflation significantly, with a peak impact of about 35 basis points. The impact is seen across most States and Union Territories. So far, the actual impact of the HRA increase on headline consumer price index has turned out to be similar to the ex-ante assessment provided by the Reserve Bank in the Fifth Bi-monthly Monetary Policy Statement, December 2017.

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February 2018

Working Capital Constraints and Exports: Evidence from the GST rollout

The implementation and refund delays under the new tax regime of Goods and Services Tax (GST) seem to have led to working capital constraints for firms, which in turn might have hurt their exports in October 2017. We provide evidence supporting this hypothesis using sectoral data on exports and find sectors that have high working capital requirements took the maximum hit during this period. However, various initiatives by the Government of India since then appear to have significantly alleviated exporters’ concerns which got reflected in the exports growth pick up in November and December 2017.

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January 2018

Credit disintermediation from banks - Has the corporate bond market come of age?

The significant increase in inflows into mutual funds and their subsequent deployment is altering the scope of disintermediation in India. The study looks at this evolving milieu and its implications for bank intermediation in general and credit portfolio of banks in particular.

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December 2017

State Government Yield Spreads – Do Fiscal Metrics Matter?

Spreads of state development loans (SDLs) relative to the yields of central government securities of corresponding maturity appear to be caused by illiquidity and prevailing market conditions. Nevertheless, inter-state variations are hardly observed in market pricing of the loans in primary auctions. This presents little market incentives for state governments to improve their fiscal positions and lower their debt.

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November 2017

From Cash to Non-cash and Cheque to Digital: The Unfolding Revolution in India’s Payment Systems

Empirically evaluating the impact of demonetisation on inter-bank payment and settlement systems against the backdrop of progressive use of electronic modes and capping service charges, this study finds that (i) there has been a reduction in the usage of cheques prior to demonetisation; and (ii) since demonetisation, cash transactions have moved in a sustained manner to non-cash mode of payment systems via retail electronic payment systems, point of sale terminals and cheques.

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September 2017

Non-Bank Funding Sources and Indian Corporates

The last decade has witnessed growing importance of non-bank funding sources for Indian corporate sector. Over the same time, Indian banking industry has been crippled by the ever-rising Non-Performing Assets (NPAs), which has reduced the effective supply of bank credit. The aim of this study is to understand the link between these two developments.

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September 2017

Farm Loan Waivers, Fiscal Deficit and Inflation

Some Indian states have announced farm debt waivers recently, which bear ramifications for the fiscal burden of states over the medium term. Empirical estimates suggest that fiscal deficit can have an inflationary impact. If the combined fiscal deficit for 2017-18 goes up by 40 bps on account of farm loan waivers(both actual and intended), with the budgeted combined fiscal deficit at around 5.9 percent for 2017-18 and inflationary momentum remaining benign, ceteris paribus, this may lead to around 20 bps permanent increase in inflation, starting 2017-18.

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Agriculture Loan Bank Accounts – A Waiver Scenario Analysis

Many state governments have announced farm debt waiver schemes with varying features / coverage to provide relief to indebted farmers. This note presents a scenario-based analysis of possible size of debt waiver using account level data on bank credit. The estimates range from ? 2.2 lakh crore to ? 4.2 lakh crore, depending on the extent of coverage under the waiver schemes. In all cases, however, loan waiver by states could adversely impact their fiscal position.

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August 2017

Market Reaction to the Banking
Regulation (Amendment) Ordinance, 2017

The stock market reaction to the Banking Regulation (Amendment) Ordinance, 2017 has been positive for banks and their high quality borrowers but negative for distressed firms, suggestive of its potential to rejuvenate banking sector health and to improve capital allocation across firms.

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August 2017

Financialisation of Savings into Non-Banking Financial Intermediaries

The study shows that an important positive impact of demonetisation has been to induce a shift towards formal channels of saving by households, particularly into equity/debt oriented mutual funds and life insurance policies. Non-banking financial companies (NBFCs) also seem to have been positively impacted. The challenge, going forward, would be to channelise these funds into productive segments of the economy.

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Demonetisation and Bank
Deposit Growth

The study estimates ‘excess’ bank deposit growth following demonetisation employing alternative scenarios. It finds that there appears to have been a significant increase in bank deposits due to demonetisation. If sustained, such gains could have a beneficial impact in the form of financialisation of savings.

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Disclaimer- The views and opinions expressed in Mint Street Memos(MSM) are those of the authors and do not necessarily represent the views of the RBI.


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