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Working Papers | 2019

'Allottees' as financial creditors: pushing the conceptual limits of the Indian insolvency regime

M.P. Ram Mohan and Vishakha Raj

The Insolvency and Bankruptcy Code, 2016 (IBC) was amended in June 2018 to include amounts raised from an allottee (any person to whom an apartment or plot in a real estate project has been allotted or sold) in a real estate project within the definition of 'financial debt' thereby recognising allottees as financial creditors. Though the Supreme Court of India has upheld the constitutional validity of the amendment, its rationale raises concerns about the purpose of the Indian insolvency regime. Through the amendment, Parliament appears to have operationalised the insolvency regime to solve a sectoral problem, namely, mismanagement in the real estate sector. This paper posits that the amendment was enacted at the cost of stretching the definition of 'financial creditor' beyond its conceptual limit and interfering with the IBC's insolvency resolution mechanism. It also examines the basis of the inclusion of allottees within the IBC and uses past decisions of the IBC's adjudicating authorities as a reference for its analysis. The paper concludes that the reasons supporting the inclusion of allottees within the definition of a 'financial creditor' are less persuasive than those which favour its exclusion.

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Working Papers | 2019

Ripples on financial networks

Sudarshan Kumar, Avijit Bansal, and Anindya S. Chakrabarti

In the financial markets, asset returns exhibit collective dynamics masking individual impacts on the rest of the market. Hence, it is still an open problem to identify how shocks originating from one particular asset would create spillover effects across other assets. The problem is more acute when there is a large number of simultaneously traded assets, making the identification of which asset affects which other assets even more difficult. In this paper, we construct a network of the conditional volatility series estimated from asset returns and propose a many-dimensional VAR model with unique identification criteria based on the network topology. Because of the interlinkages across stocks, volatility shock to a particular asset propagates through the network creating a ripple effect. Our method allows us to find the exact path the ripple effect follows on the whole network of assets.

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Working Papers | 2019

Steering the Macroeconomy with a Broken Compass and Stuck Rudder?

Sebastian Morris

In this paper we bring together the findings of Subramanian, A. (2019) and Morris and Kumari (2019), and others to claim that the problems with the new national income series are real and need to be addressed. The CPI11-12 too is problematic since the weight of basic food in the CPI11-12 is as high as 45% when there is no wat the same could have been more than 34%. As a result macroeconomic policy may have been handicapped pushing it to restrictive especially monetary policies that may have been one of the underlying causes of the current recession in the economy.

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Working Papers | 2019

Real Estate and Infrastructure Resolution

Jayanth R. Varma and Sebastian Morris

We propose a mechanism that uses the financial markets to mobilize the resources of a large population of investors, to revive the impaired assets in the real sector in India today. This should also allow the economy to escape from the strangle hold of the "doom loop", in which the financial sector, the infrastructure and real estate sectors and the economy in general through their feedback effects on each other, portend to take the economy deeper into the recession. The mechanism where the government covers the left tail risk in infrastructure and real estate, has the potential to revive these assets to the benefit of the homebuyers, users and the public, with the government earning a handsome return, while being fair to the developers as well. With such a mechanism in place, in the future, developers would know that using distressed public value to their advantage would not be possible in the future.

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Working Papers | 2019

A computational algorithm to analyze unobserved sequential reactions of the central banks: Inference on complex lead-lag relationship in evolution of policy stances

Anindya S. Chakrabarti and Sudarshan Kumar

Central banks of different countries are some of the largest economic players at the global scale and they are not static in their monetary policy stances. They change their policies substantially over time in response to idiosyncratic or global factors affecting the economies. A very prominent and empirically documented feature arising out of central banks' actions, is that the relative importance assigned to inflation vis-a-vis output fluctuations evolve substantially over time. We analyze the leading and lagging behavior of central banks of various countries in terms of adopting low inflationary environment vis-a-vis high weight assigned to counteract output fluctuations, in a completely data-driven way. To this end, we propose a new methodology by combining complex Hilbert principle component analysis with state-space models in the form of Kalman filter. The CHPCA mechanism is non-parametric and provides a clean identification of leading and lagging behavior in terms of phase differences of time series in the complex plane. We show that the methodology is useful to characterize the extent of coordination (or lack thereof), of monetary policy stances taken by central banks in a cross-section of developed and developing countries. In particular, the analysis suggests that US Fed led other countries central banks in the pre-crisis period in terms of pursuing low-inflationary regimes.

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Working Papers | 2019

Between Aastha and Zee:
Mystery of the Missing Market for a Weather Channel

Satish Y. Deodhar and Chayasmita Deka

Until a few decades ago, Doordarshan was the only channel which would broadcast TV programmes in black-&-white and that too for a few hours. It was a pure public good then, offered free of cost by the government. Today, however, from Aastha to Zee there are hundreds of dedicated private channels competing to offer news, sports, entertainment, and spirituality for a price. And still, there is not a single channel which is dedicated to 24-hour weather forecast. This missing market for the exclusive weather channel is the result of the perceived marginal private benefit to viewers being much less than the marginal social benefit accruing to the society as a whole. Every year unanticipated weather patterns cause huge economic losses to agriculture and other industries and cause a great number of fatalities too. Therefore, government and the corporate sector may offer a 24-hour TV channel for weather forecast in the form of public private partnership (PPP). The weather forecasting infrastructure and data may come from government institutions such as IMD, C-DAC, and ISRO; professional content delivery and services of weathermen who deliver the content may come from TV media firms; and the break-even revenue may come through CSR activities of the corporate sector.

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Working Papers | 2019

Right of recourse claims based on latent defects in the nuclear energy sector in India: brace yourself for fact-intensive disputes

M.P. Ram Mohan and Els Reynaers Kini

This working paper is focused on trying to interpret the meaning of "latent defects" and analysing how a case were to unfold if an operator of nuclear installation were to exercise its right of recourse against a supplier in the event of supply of equipment or material with latent defects, as envisaged under the unique Section 17(b) of the Civil Liability for Nuclear Damage Act, 2010 (CLND Act), as adopted by the Indian Parliament. Therefore, this paper presumes and builds on the assumption of some prior knowledge of general nuclear law principles as well as the CLND Act and related debates. We welcome comments on any part of the paper.

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Working Papers | 2019

Buy, Sell or Hold: Entity-Aware Classification of Business News

Ankur Sinha, Satishwar Kedas, Rishu Kumar, and Pekka Malo

Financial sector is expected to be at the forefront of the adoption of machine learning methods, driven by the superior performance of the data-driven approaches over traditional modelling approaches. There has been a widespread interest in automatically extracting information from financial news flow as the signals might be useful for investment decisions. While quantitative finance focuses on analysis of structured financial data for investment decisions, the potential of utilizing unstructured news flow in decision making is not fully tapped. Research in financial news analytics tries to address this gap by detecting events and aspects that provide buy, sell or hold information in news, commonly interpreted as financial sentiments. In this paper, we develop a framework utilizing information theoretic concepts and machine learning methods that understands the context and is capable of extracting buy, sell or hold information contained within news headlines. The proposed framework is also capable of detecting conflicting sentiments on multiple companies within the same news headline, which to our best knowledge has not been studied earlier. Further, we develop an information system which analyzes the news flow in real-time, allowing users to track financial sentiments by company, sector and index via a dashboard. Through this study we make three dataset related contributions - firstly, a training dataset consisting of more than 12,000 news headlines annotated for entities and their relevant financial sentiments by multiple annotators, secondly, an entity database of over 1,000 financial and economic entities relevant to Indian economy and their forms of appearance in news media amounting to over 5,000 phrases and thirdly, make improvements in existing financial dictionaries. Using the proposed system, we study the effect of the information derived from daily news flow in the years 2012 to 2017, over the Indian broad market equity index NSE 500, and show that the information has predictive value.

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Working Papers | 2019

Does IT work? Information Technology (IT) in Welfare in India*

Reetika Khera and Vineeth Patibandla

The use of information technology (IT) in public administration is viewed as a significant tool for enhancing transparency and accountability. In popular rhetoric, these continue to be heralded as necessary and sufficient conditions for increasing transparency and accountability. This paper studies the use of various forms of IT such as computerization, public management information systems (MIS), digital ID and biometrics in two welfare programmes in India. This paper aims to (a) use government MIS portals to shed light on the performance of welfare programmes, (b) understand whether recent IT applications have been beneficial or detrimental to programme performance and (c) comment on what extent IT has fulfilled its potential to enhance transparency. We find support for two earlier findings: one, there is no automaticity between use of IT and enhanced transparency or accountability and two, the use of IT may reinforce, even exacerbate, existing power imbalances rather than mitigating them. Further, we find some evidence of 'too much' technology being detrimental to improving administration and accountability.

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Working Papers | 2019

Financing Infrastructure in India – Issues and the Way Forward

Sebastian Morris

Optimal approaches that recognize the specific kind of market failure/s, in the policy and design of infrastructure, greatly reduce the financing costs and improves the ability of to attract finance in the private provisioning of infrastructure. When state systems are weak organizationally it is first best to strengthen the state capacity so that it can minimally perform the roles of design, regulation, development of frameworks, and of monitoring, for the private provisioning of infrastructure. This is particularly so in the case where there are dual market failures arising out of both the natural monopoly and the appropriability failure aspect. Thus sewerage and water, city roads, multimodal facilities, solid waste, public health care, the challenges have proven beyond the current ability of the state, despite its large commitment to the use of private capital. The challenges in design and policy are large and with many false starts it is only now barely beginning to be considered in India. Thus infrastructure design rather than debilities in financial markets remain the key problem.
The need to develop capital markets and institutions to lend long is vital, but much of the challenge is really in having good projects that are financed keeping in mind the capacity limitations within banks and financial institutions. The potential to use of foreign capital to finance infrastructure is often overstated. Reform of financial institutions (FIs) and banks is vital today, as also the necessary incorporation of interest rate (change) risks into the project cost to overcome adverse selection. The forces leading to the current mess-up of the Indian banks and FIs in lending to infrastructure are brought in perspective. The key issues in developing state capacity, and the changes required for getting the design of infrastructure right, as also to bring functionality to the role of financial institutions in the private development of infrastructure are highlighted.

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