ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles by Ajit KarnikSubscribe to Ajit Karnik

Ignoring Priorities

The growth impetus that is hoped for in the 2003-04 Budget is to come not from any structural changes in the economy or through pushing up infrastructure investment, but is expected to be consumption-led: revenue deficits continue to be high, salaried individuals have received some relief, dividend tax has been abolished, so too expenditure tax. However, if the growth gamble does not work, then government finances will come under severe stress and the country will have to face the consequences of a budget that did not address the very priorities that were set out by the finance minister himself in his budget speech.

Mid-Term Review 2002-03

The finance ministry's Mid-Term Review of the economy needs to be more than a mere fulfilment of an obligation. It must become a document with analytical content. It must serve to point out the gaps that have emerged in the budgetary process and also offer credible reasons for those gaps. And finally, it must lay out the road-map for the second half of the financial year and specifically spell out corrective action where needed.

Direct Tax Reform

The consultation paper of the Task Force on Direct Taxes has an evangelical flavour to it. Some of its suggestions for administrative simplification can be accepted without hesitation, but its other suggestions require more inputs before decisions can be made. It would be interesting to see the detailed computations that underlie the recommendations of the Task Force.

Overcoming Political Obstacles to Economic Reforms via Redistribution

Political obstacles to the reforms process is a genuine problem in most reforming economies. Such obstacles, it is feared, shackle a reforming government, which is then unable to complete the reforms agenda. This paper argues that the magnitude of political economy problems may be exaggerated and that a way out of the impasse is possible. An approach to political calculus is developed that sets out the conditions under which broadbased reforms may be introduced by the government without electoral dangers. This approach is tested using Indian data.

Fiscal Policy and Growth

Can fiscal policy play a key role in the revival of the economy? The problem is that this question has had to be posed in the context of deteriorating fiscal balances of the centre and the states, whose combined deficit is today slightly worse after 10 years of reform. The states' gross fiscal deficit has deteriorated significantly. It is absolutely necessary, therefore, for the centre to be seen to be fiscally prudent, which will be a signal to the states of the centre's seriousness in regard to fiscal management. A contrary signal will undermine any restraint that the centre can bring to bear on the states.

Fiscal Responsibility and Budget Management Bill

India's fiscal scenario at the moment is about as bad as it was in 1991-92, the beginning of the economic reforms process. For a variety of reasons, many of them in the realm of political economy, the government has been unable to reduce its expenditures and increase revenues. A fiscal responsibility bill, of the kind being discussed currently, is meant to offer a credible commitment that the government is serious about fiscal consolidation. By tying its own hands the government signals that it is serious about reducing deficits. While one may disagree with the details of the bill, the broad overall thrust and the philosophy underlying it deserve to be welcomed. Unfortunately, as this note is being written, the government is seen to be completely diluting the provisions of the bill so as to render it completely ineffective.

Slowdown of the Economy:Which Way Out?

In the panic that has gripped Indian business and government policy circles, it is easy to recommend measures which can be best described as quick fixes. But it is important that quick fixes be avoided if long-term development is not to be compromised. The main reasons for the current slowdown are structural and must be addressed as such. This calls for boosting not any kind of government expenditures, but expenditures that will raise productivity. Alongside must be tackled the institutional impediments that continue to obstruct private investment. Ten years after the initiation of economic reforms it is urgently necessary now that we recognise the important role that the institutional environment plays in development.

Government Finances:Weaknesses Remain

The weaknesses that still persist in government finances even though at an aggregate level deficit targets are being met. Also, a look at the issue of food subsidy.

Microsoft, Competition and Competition Policy

The Microsoft case has thrown up interesting issues in the area of regulation of anti-competitive practices. This has relevance for India in the context of the Competition Policy that is currently being debated. The main objective here is to examine in detail the case against Microsoft and the remedy that has been proposed by the court. The paper also looks at the proposed remedy from a transaction costs perspective and puts forward some conjectures on the likely effect on innovations in the software industry. The paper touches upon some of the more contentious issues regarding the Report of the Committee on Competition Policy.

Do Indian Stock Markets Matter?

This paper deals with the inter-relationships between stock prices and important macro-economic variables. Specifically, following macro-economic variables: Exchange rate of rupee vis-a-vis the dollar, prime lending rate, narrow money supply, broad money supply, and index of industrial production are considered. The econometric analysis uses state-of the art techniques such as unit root testing, cointegration and error-correction models. The analysis and discussion are situated in the context of macro-economic changes, especially in the financial sector, that have been taking place in India since the early nineties.


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