Prasanna L. Tantri

Borrowing Culture and Debt Relief: Evidence from a Policy Experiment

Using a model as well as extensive empirical tests, the present paper investigates the effects of a large-scale debt waiver program on the post-waiver debt repayment behavior of borrowers in a typical rural credit market in an emerging economy. In this market the farmers borrow from banks at a subsidized rate and from private moneylenders at a substantially higher rate, debt contract enforcement is imperfect, and political interventions in the credit market in the form of waiver of overdue debt can happen even in normal states of the economy. Our model includes all classes of borrowers: those who receive full debt relief, those who receive partial debt relief, and those who do not benefit at all from the program as they do not have overdue loans. The effects are negative for all groups. In the post-waiver period, all borrowers, behaving strategically, default as well as take longer to repay their loans than in the pre-waiver period, causing ex-post inefficiency in the credit market. Interestingly, the effects are most negative for the formerly good borrowers who did not default before. Expectations about similar debt relief in future coupled with extensions on loan repayment granted by bankers who find debt recovery difficult drive our results. Further, rationally anticipating adverse borrower behavior, the lending institutions ration credit, generating ex ante inefficiency as well. Ironically, access to credit declines for poor households following unconditional debt relief. We confirm the predictions of the model with extensive tests using loan accounts data for a large sample of rural borrowers before and after a nation-wide debt relief program undertaken by the Indian government in 2008, one of the largest such programs in history.

Bank Accounts for the Unbanked: Evidence from a Big Bang Experiment

Over 2.5 billion individuals around the world are unbanked. How they can be brought into the formal financial system is a question of policy and academic interest. We provide evidence on this question from India’s PMJDY program, a“big bang” shock that supplied bank accounts to virtually all of its 260 million unbanked. We analyze activity in the new PMJDY accounts using actual transaction data in the accounts. While the newly included individuals are typically poor, unfamiliar with banking, and do not undergo literacy or other training, transaction levels nevertheless increase as accounts age and converge or exceed levels in non-PMJDY accounts of similar vintage. Usage is led by active transactions and is aided but not entirely explained by benefit transfer programs. The results suggest that the unbanked have unmet (possibly latent) demand for banking, or that the supply of banking perhaps stimulates its own demand.

Non Committed Voters and Economic Growth: Evidence from India

Using actual voting records of simultaneous elections held for Indian federal and regional assemblies-where same political parties contest against each other in both type of elections we identify non-committed voters. These are split ticket voters who vote for different parties in two different but simultaneous election. We find that the representatives supported by such voters outperform significantly with respect to both constituency level outcomes as well as measures based on individual effort. Having controlled for the impact of observable factors, we follow Imbens (2003); Harada (2012) and conduct generalized sensitivity analysis in order to account for the influence of unobservables.

Effects of CEO Turnover in Banks: Evidence Using Exogenous Turnovers in Indian Banks

We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs face problems of information asymmetry because banks’ operations are opaque and bank risk can change dramatically in a short time. These CEOs may therefore change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting in which CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.

Government Employment Guarantee, Labor Supply and Firms’ Reaction: Evidence from the Largest Public Workfare Program in the World

Using establishment-level employment and operating data, we examine the impact of Indian government’s employment guarantee program on labor and firm behavior. Using the staggered implementation of the program for identification, we find that the program leads to 10% reduction in permanent workforce in factories. Factories respond to the adverse labor supply shock by resorting to increased mechanization. As a result, firms’ cost of production increases significantly leading to a reduction in net profits and productivity. These effects manifest primarily in firms paying low wages, having low labor productivity, greater cash-flow volatility and firms located in states with pro-employer labor regulations.

Impact of Third Party Audits on Compliance and Corruption: Evidence Using a Policy Experiment

Using a policy experiment in India, we examine the impact of a third party audit on tax compliance. Employing the generalized difference-in-difference methodology, we find that growth in tax payment is 58 percentage points higher under a regime with no third party audit. The fact that the differential growth in tax is negatively associated with differential growth in discretionary expenses and also absence of any real growth of treated firms, suggestively indicate collusion and corruption. Our results hold up-to a battery of placebo tests, absorption of time varying and time invariant unobservable factors and, display heterogeneity based on expected lines.

How Do Political Dynasts Perform?: Evidence From India

While persistence of political dynasties in a democracy has received attention, the performance of dynasts remains unstudied. using a regression discontinuity (RD) framework, we compare dynastic representatives, who defeat non-dynastic candidates by a close margin with non-dynastic representatives, who defeat dynasts by a similar margin. We devise a set of performance measures, which include aggregate outcomes as well as measures based on individual initiative. We find that dynasts under-perform in terms of economic growth, crime, utilization of development funds and parliamentary performance and do not outperform in terms of any other criteria. Our findings show that the persistence of dynasties imposes significant economic and political costs.

Do Derivatives Matter?: Evidence from a Policy Experiment

We study the impact of derivatives on various stock characteristics such as valuation, price efficiency, and liquidity. We resolve the endogeneity issue faced in the extant literature by using an order issued by the Indian market regulator that resulted in the delisting of 51 stocks from the derivative segment. Using this policy experiment, we examine the conflicting hypothesis regarding the impact of derivatives on stock fundamentals. We find that excluded firms underperform the market by 4.07% during the event window. We identify a decline in price efficiency and reduction in liquidity as channels through which the above phenomenon manifests. Contrary to the expectations of the regulators, volatility remains largely unchanged. We rule out regulatory targeting by employing several placebo and robustness tests. We conclude that derivatives indeed add value by improving price efficiency and liquidity of a stock.

Effective Democracy and Swing Voters: Evidence Based on Actual Voting Records

Using actual voting records of simultaneous elections held for federal and regional assemblies - where same political parties contest against each other in both type of elections - we identify the swing voters in an electoral constituency. We compare the Parliamentary performance of elected representatives who enjoy high level of support among swing voters and those who enjoy low level of support among such voters. We measure performance of an elected representative based on her level of activity in Parliament. Specifically, we use attendance, number of questions asked, number of debates participated in and number of private member bills introduced as metrics for measuring performance. We find that representatives who enjoy high level of support among swing voters outperform others significantly in terms of all four parameters that we examine. The above differences are not explained by differences in observable candidate characteristics. We also find that reelection chances are more sensitive to performance in high swing constituencies. The above findings show that the presence of swing voters enhances the effectiveness of democratic institutions by significantly increasing activity level of such institutions.

Democracy and Economic Growth: Do Swing Voters Make a Difference?

Using actual voting records of simultaneous elections held for Indian federal and regional assemblies -- where same political parties contest against each other in both type of elections -- we identify swing voters. We find that the representatives supported by swing voters outperform significantly with respect to both constituency level outcomes as well as measures based on individual effort. Having controlled for the impact of observable factors, we follow Imbens (2003); Harada (2012) and conduct generalized sensitivity analysis in order to rule out the influence of unobservable factors. We show that the swing voters strengthen the positive association between democracy and growth.