This post presents our monthly curation of developments in the Indian policy landscape – highlighting I4I content pertaining to the impact of US monetary policy announcements on emerging economies, fertility differences across Indian states, resilience and adaptation vis-à-vis climate events, and the need for a regulatory framework for cryptocurrency. 

Monetary policy easing

In its September 2024 meeting, the US Federal Reserve (Fed) cut interest rates for the first time in four years, kicking off a cycle of easing in US monetary policy.¹ While a rate cut was expected, the size of the cut – at 0.5 basis points (bps) – is larger than usual. The Fed move was preceded by central banks across the developed world, such as in Europe, United Kingdom and New Zealand, lowering rates. A similar rate trend is seen in emerging economies such as Mexico, with China announcing a stimulus package within a few days of the Fed cut. Although the Reserve Bank of India (RBI) did not follow suit, keeping repo rate unchanged in the October meeting of the Monetary Policy Committee (MPC), it did alter its monetary policy stance from ‘withdrawal of accommodation’ to ‘neutral’ 

In their 2017 research, Gupta and co-authors note that from the perspective of emerging economies, spillover effects of policy announcements by the US tend to be much stronger than those of other advanced economies. However, the impact is mainly seen in the case of ‘surprise’ policy changes and is greater in magnitude when there is tightening relative to easing. 

Aizenman et al. (2024) contend that the US dollar and monetary policy continues to drive global financial cycles, impacting trade and capital flows, and consequently influencing policy options of developing countries. For instance, when returns are low in the US, emerging markets may become a destination for volatile search-for-yield inflows – as was the case following the Global Financial Crisis of 2007-08. Analysing data on a large sample of emerging markets, their study underlines the importance of consistent strategy that strengthens macroeconomic fundamentals and institutional quality in emerging economies, across all phases of the US monetary policy cycle. The researchers conclude that these factors make some emerging economies more resilient to US policy cycle than others. 

Fertility differences across Indian states

As per a Report of the UNFPA (2023), India’s over-60 population will double from 10.5% in 2022 to 20.8% by 2050. Further, the Report highlights the significant inter-state variation in the absolute levels and growth of elderly population. Measuring the ageing index – defined as the number of elderly (over 60) per 100 children (under 15) – South India tops the charts at 61.7 in 2021 (against a national average of 39.3). On the other hand, states such as Bihar and Uttar Pradesh have higher fertility rates and are expected to have below-average elderly population shares in the coming years. 

Politicians in hern states have expressed concern that smaller populations would mean a decline in political influence as the Delimitation of seats in the lower house of the Parliament will be based on data from the next Census. Consequently, they are considering legislation to incentivise families to have more children. However, social demographer Sonalde Desai argues that pro-natalist policies have not had much success elsewhere in the world. Explaining that total population is a result of fertility, mortality and migration, her advice is to encourage migration of working-age population from the North to the South. Listen to Desai’s I4I podcast with Farzana Afridi, for a deeper dive into related issues and possible solutions. 

Cyclone Dana

A severe cyclonic storm ‘Dana’ hit the Odisha-Bengal coast in East India on 24 October. Odisha achieved zero casualty on account of massive pre-disaster planning undertaken by the state. October 2024 happened to mark 25 years since the devastating Super Cyclone that killed 10,000 people in the state. In a recent I4I post, Souryabrata Mohapatra (NCAER) discusses the vulnerability of the state to climate events, and how the 1999 event “served as a catalyst for the state to overhaul its disaster management strategies.” He distils four key aspects of Odisha’s model of disaster resilience – multi-layer institutional framework, ground-up approach, capacity-building, and infrastructure and technology, which reflect the ethos of valuing every life. 

Writing in Down To Earth, Dash and Roul (2024) point out that Cyclone Dana exposed the resettlement location Bagapatia, to which families from Satabhaya were moved as soil erosion affected their homes – making it no better for those displaced in terms of climate resilience. In her recent I4I post, Sampurna Sarkar (WWF India) presents examples of climate change-led mobility from other countries, and draws lessons for the Indian government to ensure the safety and well-being of at-risk populations. In her view, the goal should be to transition to a state of voluntary mobility, while also conducting eco-restoration of origin locations. 

Mulling over crypto

According to media reports in August, the Department of Economic Affairs, Ministry of Finance planned to release a Consultation Paper by October, in order to invite feedback from stakeholders on how to regulate cryptocurrency². While the Paper is still awaited, this is seen as an indication of “the government’s active interest in shaping the future of digital currencies in India.” 

In a recent I4I post, Nipuna Varman of NIPFP discusses how the security breach faced by crypto exchange WazirX in July makes it evident that a clear regulatory and policy stance is required, in the interest of consumer protection.³ She contends that the initial proposal of ‘loss socialisation’ by the firm – despite being later withdrawn on account of criticism and user pushback – bring important issues to the fore. The plan is comparable to a government bail-out of a bank using taxpayer money, in terms of the firm/shareholders not absorbing losses and these being distributed among users. This creates a ‘moral hazard’ as the decision-makers at the firm have little incentive to exercise caution in dealing with consumer funds, or to make recovery efforts. While the wider conversation around financial institutions has shifted from bail-out to bail-in over the years, the lack of a regulatory framework for crypto makes it fraught with dangers and inefficiencies.

The 2024 Economics Nobel Prize has been awarded to Daron Acemoglu, Simon Johnson and James Robinson “for studies of how institutions are formed and affect prosperity.” Ahead of the ceremony in December, look out for I4I’s post on the significance of their work in the context of India. 

Notes:

1. Such a rate cut by a central bank lowers the interest rate that customers have to pay to banks, hence expanding the supply of credit in the economy and enabling growth. At the same time, a greater amount of money and demand in the economy can spur inflation. Accordingly, the rates are determined by central banks keeping in mind the objectives of economic growth and inflation management.
2. In a 2018 I4I post, Pandey and Sharma of NIPFP (National Institute of Public Finance and Policy) sought to explain the mechanics of crypto and decode the jargon used in discussions around it.
3. Varman’s post also provides a quick overview of where things currently stand with India’s policy and regulatory stance with regard to crypto.