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

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Some Issues in External Sector Management

The Indian external sector has undergone radical changes post 1992. Against this background, an attempt is made to look at the role of the exchange rate, level of current account deficit, adequacy of foreign exchange reserves and capital flows, and capital account convertibility. The balance of payments in India has been managed well so far. There is a need to increase export competitiveness, which requires among other things an efficient, well-knit infrastructure. To prevent a rise in the real effective exchange rate, we should keep domestic prices stable. The surpluses in the services sector will also need nurturing.

Underlying Drivers of India’s Potential Growth

Global growth is expected to be tepid in the medium term and India will have to depend on domestic growth drivers. In order to better understand the future, a new methodological framework is proposed to estimate potential growth in India with a focus on capacity output till 2029–30. The domestic savings rate was identified as the most potent growth-augmenting driver.

RBI’s Interest Rate Policy and Durable Liquidity Question

The Reserve Bank of India should take into consideration longer term liquidity management for smooth monetary transmission. It must clearly define “durable liquidity” in the form of some quantitative variable and set its desired path for one year or so. This will anchor expectations on future interest rate and liquidity premium, and certainly improve the link between the interest rates in various terms to maturity. Moreover, the desired target for durable liquidity can also serve to improve overall monetary policy effectiveness.

Profits of Public Enterprises and Commodity Taxation

Counting the Poor

Since the submission of the report of the 2012 expert group on poverty measurement, there have been a few comments on it. The purpose of this note is to clarify some of the issues raised by researchers and others on this report. The clarifi cations discussed here are (1) what is new in the approach defining the poverty line; (2) the use of calories; (3) multidimensional poverty; (4) high urban poverty in many states; (5) NAS-NSS consumption differences; (6) poverty measures in other countries; (7) public expenditure and poverty; and (8) poverty ratio eligibility for access to programmes. As most of the researchers have commented on multidimensional poverty, this note also elaborates on the reasons for not considering this measure in the report.

Developments in the Workforce between 2009-10 and 2011-12

After a disappointing performance between 2004-05 and 2009-10, the Indian labour market showed some improvement between 2009-10 and 2011-12. During this two-year period, around 11 million jobs were created at an annual growth rate of around 1.1% per annum. Both rural and urban India witnessed a sharp decasualisation of employment, especially of females, and a significant improvement in the creation of regular wage employment as compared to previous rounds of the National Sample Survey. There was a faster decline in the share of workers in the farm sector during this period, while manufacturing and service sectors witnessed high growth rates in employment.

Relevance of Keynesianism in the Post-Recession Period

Tracing the rise of Keynesian policies in the post-second world war years to its decline in the 1970s and 1980s with monetary policy playing a central role in macroeconomic stabilisation, this article examines its resurrection in the years following the global financial and economic crisis of 2007-08. It points out that at the heart of the present stimulus-austerity debate is the effectiveness of Keynesian stimulus policies during episodes of growth falling below potential, and classifi es growth crises into three different types for analytical clarity. Analysis shows that though the growth crisis in advanced economies has spilled over into developing ones through trade and investment channels, its nature is different. The focus in these countries should therefore be on addressing supply shocks and structural reforms, including investment in infrastructure, through a change in the fi scal mix.

India's External Sector

The deterioration in India's current account has led to a series of debates in the policy arena relating to sustainability, the importance of exchange rates in infl uencing the trade balance, and the role of high and rising inflation. Against this background, this article takes a step back and analyses the performance of the external sector in India since 1990. It estimates the sustainable current defi cit to GDP ratio to be 2.3%. Importantly, even to sustain a 2.3% CAD, India would need net capital infl ows of the order of at least $50-70 billion annually over the next fi ve years. Given the uncertainty around both the push factors (e g, rising global risk aversion) as well as the pull factors (slower growth in India) that determine capital fl ows, attracting such magnitudes of fl ows could very well be an uphill task.

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