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

Arvind SubramanianSubscribe to Arvind Subramanian

A Valuable Collection on the Indian Economy

The Oxford Handbook of the Indian Economy edited by Chetan Ghate (New Delhi: Oxford University Press), 2012; pp 984, Rs 4,995 (hardback).

Growth in India's States in the First Decade of the 21st Century: Four Facts

This paper is the first attempt at examining the growth performance across Indian states during 2001-09, a period also marked by the global financial crisis. We report four key findings. First, consistent with the fact that the decade was the best one for Indian macroeconomic performance, growth increased across almost all major states in 2001-09 compared to 1993-2001. Second, nevertheless, we continue to see the phenomenon of divergence or rising inequality across states: on average the richer states in 2001 grew faster in 2001-09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001-07 suffered the largest deceleration. Since high growing states were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend - a young population boosting economic dynamism - was evident before 2000, there is little evidence that there was any dividend in the 2000s. Demography alone cannot be counted on for future economic growth.

India and Climate Change: Some International Dimensions

Industrial countries have never been sympathetic to India's idea of controlling carbon emissions based on per capita targets. They prefer targets based on reductions in total emissions by developing countries, comparable or equivalent to those undertaken by them. This paper offers a new approach that tries to bolster the case for a per capita emissions approach by distinguishing the co2 emissions intensity of production and consumption from energy use per capita. It also outlines some projections that could lead to a reasonable emissions trajectory for India and one that is consistent with global efforts at addressing climate change. Looking at the role of trade in climate change, it concludes that the outcome will be messy if the trading system is burdened with the task of settling environmental problems.

Assessing Global Policy Advice

Ashima Goyal ("Avoiding Handicaps: Assessing Global Policy Advice for India", epw, 2 May 2009) in response to two papers "India and Bretton Woods II", and "Preventing and Responding to the Crisis of 2018" asserts that the arguments therein are inconsistent because the advice for international policy is in contradiction with the guidance for Indian domestic policy. No doubt there is a tension between both the articles, but there is no contradiction in the arguments and the policy proposals.

The World Crisis: Reforms to Prevent a Recurrence

The current financial crisis started in the financial sector of what was thought of as the country with the most sophisticated financial system, and that has spread almost universally and with startling rapidity by virtue of either financial or trade interdependence or both. Preventing a recurrence of such a crisis - which is a quite different exercise to overcoming the present crisis - demands reforms to the financial system. The question discussed in this essay is: What reforms? What needs to change? Preventing a recurrence requires a three-point programme: a reversal of the past policy of encouraging bank mergers and its replacement by a vigorous anti-trust policy directed at the banking sector; a determination to make monetary policy anti-cyclical (aided by the adoption of asset-price indicators); and reform of the regulatory system. There are a large number of reforms that are desirable, but the key ones are addition of macro-prudential regulations to the existing system of purely microeconomic regulation, and the penalisation of maturity mismatches in the financial system.

Preventing and Responding to the Crisis of 2018

Looking ahead, the big macroeconomic policy question for India is whether or not it should emphasise greater self-insurance with a necessarily more cautious approach to capital market integration. The serious adverse impact of the current crisis should awaken India to the need for effective self-insurance in the future. If self-insurance becomes an important policy objective, the government will need to revisit its macroeconomic policy, including exchange rate management and capital account convertibility. Self-insurance calls for countercyclical policy - dampening flows and keeping the currency competitive - so that reserves can be built up during good times.

More on Direct Cash Transfers

Continuing the debate on direct cash transfers, the authors of the article "The Case for Direct Cash Transfers to the Poor" (12 April 2008) respond to Mihir Shah's criticism (23 August 2008). The six points of contestation by Mihir Shah - including those on the public distribution system and the National Rural Employment Guarantee Scheme - are refuted. The argument in essence is that seeing the problems with anti-poverty programmes as faulty design and limited availability of resources does not recognise the culture of immunity in public administration and the weak capabilities of local governments.

India and Bretton Woods II

The G-20 meeting in Washington on 15 November is an opportunity for India to help shape the new global economic architecture in line with its strategic interests. India should propose short-term crisis response actions and suggest a clear medium-term agenda. On the former, India needs to support globally coordinated actions to help limit the economic downturn, including a political commitment by all countries to keep markets open. The medium-term agenda would have, first, reforming the financial architecture, including by strengthening the International Monetary Fund's capacity to respond to crises and enhancing its legitimacy through radical governance reform to give greater say to the emerging powers. Second, securing openness of the trading system, which would require going beyond completing the current Doha agenda in two ways: deepening rules in existing areas (especially services) and developing rules in new areas (to deal with undervalued exchange rates, cartelisation of oil markets, investment restrictions and environmental protectionism). Third, reforming governance of the meta-process for global decision-making, including through the creation of a more representative membership than the G-7.

The Case for Direct Cash Transfers to the Poor

The total expenditure on central schemes for the poor and on the major subsidies exceeds the states' share of central taxes. These schemes are chronic bad performers due to a culture of immunity in public administration and weakened local governments. Arguing that the poor should be trusted to use these resources better than the state, a radical redirection with substantial direct transfers to individuals and complementary decentralisation to local governments is proposed. The benefits, risks and associated reinforcement of institutions and accountability are outlined.

Capital Account Convertibility: A Neglected Consideration

In the debate on capital account convertibility, financial and macroeconomic objectives and constraints have been paramount, with much less discussion on the growth and development dimensions of CAC. This article focuses on one hitherto neglected aspect of first-order importance for long-run growth: the level of the real exchange rate or what might be called the objective of avoiding overvaluation.

Pages

Back to Top