Bappaditya Mukhopadhyay

Financial Market Integration

In this paper we address some key issues regarding financial market integration. We consider regional indices, country indices as well as sectoral indices for the period 1995–2008. Our main findings are: one, market integration is more prominent among markets, which are at comparable development stage; two, market integration is mostly lead by developed markets; and three, the emerging markets are more vulnerable than the developed markets during times of distress.

Role of MFIs in Financial Inclusion

Less than half the population in India has access to any formal financial instrument. Therefore, financial inclusion assumes greater importance with each passing day. Previous work and initiatives in promoting financial inclusion have mostly focused on the process, that is, how to make banking costs lower. However, such efforts have seldom yielded much. The institutions relied upon have their own problems. On the other hand, microfinance institutions (MFIs), given their widespread reach, can play a crucial role. However, MFIs are often in direct competition with formal banking. Therefore, what is the incentive for MFIs in the current scheme of things to make it easier for its client’s to access formal banking? In this article, we address these following issues: identifying the role of MFIs in financial inclusion; the institutional bottlenecks that may prevent financial inclusion; and possible solutions. We argue that instead of focusing on financial inclusion as a process, it is better to focus on instruments and institutions that will promote financial inclusion. In particular, we show that a movement towards a cashless economy will attain financial inclusion where the MFIs can be incentivised to develop and maintain the critical network of individuals who will transact cashless.

Derivatives in Asia-Pacific Markets

Asian derivative markets today account for one-third of the worldwide foreign exchange and over 40 per cent of equity derivative trading. Korea hosts the world’s largest derivative exchanges, while India has the world’s fastest growing exchange. Derivatives have made Asian capital markets more competitive. They also have significant developmental benefits, for example, as hedging tools for commodity producers and as cheaper financing tools for corporations. Policymakers all around the world have learned to emphasise good regulation, governance and risk management through central counterparties in order to minimise potential threats to financial stability. BIS reports that the over-the-counter (OTC) derivative markets have grown ten-fold over

Are Competitive Rating Agencies Efficient

Two very large companies, Moodys and Standard & Poors, dominate the credit-rating industry. These two companies own around 80 per cent of the market. No other significant major competitors exist, though there are companies that rate local securities in places like China and India. In India, bulk of the ratings done by the two leading rating agencies—CRISIL (S&P majority stakeholder) and ICRA (Moody as the major stakeholder) have more than 80 per cent market share. Is this industry efficient? In this article, we present a simple theoretical model of competitive rating agencies. We establish that competition among rating agencies need not be efficient. We also show that despite price war, a more efficient rating agency will not necessarily drive out the inefficient one.

Importance of Community Level Interventions and Success of Swaach Bharat Mission

We develop a simple theoretical model of hygiene levels in close communities. We model a close community as one where typically social costs are imposed on the individuals if they deviate from the community norms. This has a network effect as the utility derived by any individual in a close community is affected by what others are doing. Further, hygiene in our model has externalities. Any individual is affected by hygiene standards (chosen by others) in the community. In our model individuals make two decisions. In the first stage they decide whether or not to build a toilet and, contingent on the first stage decision they choose the hygiene level. Choice of hygiene level at a community is measured by the proportion of ODF households. We establish an important result that highlights the importance of a ‘programme’ like SBYM that is aimed at increasing hygiene levels. We find that, a programme that targets a community more likely to have positive impact on hygiene as compared to a programme that is targeted at individuals. The reason is simple, as hygiene has externalities, households gain most when everyone else is also investing in hygiene levels. Therefore, it is important that the households know that others are also aware of SBYM in order to incur costs of constructing toilets and making positive investments. We also plan to empirically test our findings through the survey conducted at household level.

Promoting Cashless Payments in India

This paper estimates the amount of cashless transactions that is prevalent in India. It uses survey data conducted in 2014 (from World Bank Findex) as well as household and enterprise survey conducted in 2009-10 to estimate the same. Information captured from the latter survey is also used to identify the bottlenecks and enablers of cashless payments in India. The paper presents a predictive model as well as proposes a theoretical framework to outline policy directions to promote cashless.Our findings are summarized below:• Inflow of funds in bank account works as a great enabler for cashless payments.• Approximately 12% of all urban households have made one or more cashless transactions in the last 12 months.• Approximately 3% of all (household) urban transaction value is done by using cashless instruments.• More than half the households who make cashless transactions spend 5% or more through cashless and almost a quarter of the cashless households spend more than 10% through cashless.• Approximately 80% of the households make cashless transactions in only one item.• If the households have an incentive to keep records of financial transactions, they will have higher chances of incurring non-cash expenditures.• Supply side constraint (that is unwillingness by the seller to accept such payments) is the biggest deterrence to cashless payments.• In order to incentivize the cashless payments, the joining fee for the consumers have to be lowered.Thereafter, we develop a predictive model of cashless payments. The results put together gives us an important policy direction towards what can enable increase in cashless payments.

Land Acquisition and Land Use Change: A Strategy for Adaptation to Climate Change

Land acquisition is met with stiff resistance in most parts of the country, yet there are areas where the resistance will be far less or acquisition may be even welcome. These are the areas that typically see Environment-forced displacement. Development-forced displacement and resettlement (DFDR) leading to impoverishment of the affected population is not uncommon, nor is it uncommon to find efforts to discourage populations from resettling in a destination of choice in the face of deteriorating environmental conditions at the place of origin. In a warmer world, resettlement in response to sea level rise would become virtually unavoidable where adaptive capacities are overwhelmed. This paper contends that land acquisition under such circumstances would enable the affected population to relocate and resettle avoiding impoverishment and displacement under high risk conditions at a later date, and therefore we are likely to witness the reverse hold-up problem in these areas which can only be addressed by the State. In other words, over time, as these areas become more vulnerable, the transaction value starts to decline; holding on to such land is no longer a worthwhile strategy. In order to achieve the goal of successful Environment-forced displacement and resettlement (EFDR), different policy agendas are needed which will be explored in this paper.

Society as Collection of Heterogeneous Individuals: Where Have the Moderates Gone?

Increasingly societies are getting polarized. They are dominated by individuals having opposing views. The moderates get marginalized in the debate. Societies with consumption norms, participation in democracy, religious beliefs or social networking groups are some of these which display this behaviour. In this paper we present a simple model that tries to understand what makes individuals choose a society, choose a group and most importantly what sort of belief systems. Our model is based on Akerloff (1997) where individuals consumption decisions are partly based on how they perceive themselves vis a vis the others. Individuals in our model are atomistic. They take the norms as given, respond to it as a utility maximizing individual while thinking that their actions do not affect the norms of the group or the society. This paper answers under what conditions, individuals of a certain type will dominate a society.

Compensation for Land When Landowners Communicate

In India, the extent of debate in the policy space regarding land acquisition for industrial usage is immense in the last few years. With an aim to achieve higher growth targets, increasingly efforts towards industrialization leads to higher amount of displacement and restatement of agricultural landowners. This has led to ever increasing unrest in the society leading to huge inefficiency both in terms of locked up values and loss of human lives and livelihoods. In this paper we propose a mechanism that addresses the issue of compensation during land acquisition. We propose the optimum amount of land that can be acquired as well as the mechanism allowing – (a) land as a private value and (b) landowners must be allowed to coordinate before the final offer is accepted or rejected. Our mechanism also helps in solving the hold up problem.

Elections in India

The two major concerns in Indian electoral system are enormous spending and increased criminalisation of politics. While roughly one-third of all elected offices (state or national) have members with some criminal charges, the spending in 2009 general elections exceeded the total spends in the US general elections held a year earlier. This article links the two. We develop a theoretical model that views candidates as a strategic choice by the parties. We propose a two-dimensional contest function. In this framework we analyse the likely scenarios when a party chooses candidates with criminal records as well as how much to spend for that candidate. Our framework also analyses the role of reservations. We use records of 36,731 candidates who contested elections at either Lok Sabha or Assembly level during the last 5 years.