Borrower Distress and Debt Relief: Evidence from a Natural Experiment
By Saptarshi Mukherjee, Krishnamurthy Subramanian, Prasanna Tantri
Journal of Law and Economics | November 2018
DOI
rbidocs.rbi.org.in/rdocs/content/pdfs/Dr.%20Krishnamurthy%20Subramanian%20and%20Dr.%20Prasanna%20Tantri_Paper(31082017).pdf
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Mukherjee, Saptarshi., Subramanian, Krishnamurthy., Tantri, Prasanna. Borrower Distress and Debt Relief: Evidence from a Natural Experiment Journal of Law and Economics rbidocs.rbi.org.in/rdocs/content/pdfs/Dr.%20Krishnamurthy%20Subramanian%20and%20Dr.%20Prasanna%20Tantri_Paper(31082017).pdf.
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Journal of Law and Economics, 2018
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Abstract
Using unique borrower-level data, we study the causal effect of debt relief on the loan performance of distressed and nondistressed borrowers. We employ a regression discontinuity design that exploits exogenous cutoff dates underlying the 2008 Indian debt waiver program to separate defaulters on loans into beneficiaries and nonbeneficiaries of waivers. By identifying distress before the waiver program using exogenous borrower-level shocks, we examine performance on loans originated after the waiver program. Loan performance of nondistressed beneficiaries worsens, while that of distressed borrowers improves. While existing studies aggregate the effects of debt relief across distressed and nondistressed borrowers, we highlight crucial differences between them

K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.

As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.

His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”

Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.

Krishnamurthy Subramanian
Krishnamurthy Subramanian

Prasanna Tantri is an Associate Professor of Finance and the Executive Director of the Centre for Analytical Finance at the Indian School of Business (ISB). He also serves as an Independent Director and Chair of the Audit Committee at Power Finance Corporation. In 2o24, he was appointed as a Member of the Technical Advisory Committee for the Evaluation of Schemes for the Promotion of Digital Payments in India, under the Development Monitoring & Evaluation Office (DMEO), NITI Aayog.

Professor Tantri has previously been a part of the Expert Working Group at the National Stock Exchange and a Member of the Technical Group on the Social Stock Exchange, constituted by the Securities and Exchange Board of India. His research interests include banking, financial inclusion, financial contagion, regulation, and the relationship between politics and finance.

Prasanna Tantri (1)
Prasanna Tantri