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

Articles By Mihir Rakshit

Inflation and Relative Prices in 2006-10: Some Analytical and Policy Issues

An intriguing phenomenon in the Indian economy in the recent past has been the movement of inflation - in wholesale and consumer prices - between 2006 and 2010. This was a period - covering the pre- and postcrisis years - during which gdp growth was, first, very high and stable, only to be followed by sharp deceleration and then by a quick recovery. This paper sets out to analyse the movement of inflation over these years and the factors underlying the shifts. The policy dilemmas for the government and the central bank are discussed, as also what conventional theory suggests could be the causes and solutions. It concludes with a discussion of the likely challenges in the future.

Fiscal Consolidation and Inclusive Growth: The Finance Commission Approach

The recommendations of the Thirteenth Finance Commission, made in the context of the fiscal stress that was experienced during the global crisis, include relaxation of fiscal targets for purposes of macrostabilisation, preparation of a fiscal adjustment programme for 2010, raising both public and private investment by creation of fiscal space for government capital expenditure and ensuring fiscal viability. The commission's emphasis on allowing for macrostabilisation as a means of raising productive investment is unexceptionable, so too are many of the reforms that have been suggested. However, the lack of an adequate analytical framework has made the overall recommendations less than satisfactory. This inadequacy is reflected in a failure to identify the basic conditions that call for anti-recessionary measures and their optimal combination, a neglect of distortionary and gdp-reducing effects of subsidies, viewing outlays on human resource development as current rather than capital expenditure, a neglect of conditions governing crowding in and crowding out of investment, treatment of disinvestment as part of investible resources and the clubbing of domestic and external debt and of debt held by the public and the Reserve Bank of India.

Global Downturn and Cross-Border Trade: Some Theoretical and Policy Perspectives

The theme of this paper is the behaviour of global trade and gdp during the most intense phase of the world financial crisis, lasting from the fourth quarter of 2008 to the third quarter of 2009. It examines two features of the downturn: one, the much sharper fall in the volume of trade than that in income, and, two, the much higher gdp-buoyancy of trade during the crisis than before.The paper first examines how far trade buoyancy and its asymmetric behaviour can be explained in terms of a conventional, open-economy macro model and analyses the implications of intra-industry trade in this context. It then focuses on the significance of the financial shock for the two phenomena under investigation. This is followed by a discussion of the impact of large-scale expansionary measures undertaken by governments of both the advanced and emerging market economies, and an evaluation of the efficacy and optimality of these measures from the national and global perspectives.

India amidst the Global Crisis

Contrary to popular belief, there were palpable signs of the Indian economy losing steam long before the outbreak of the global crisis. But there is little doubt that the global meltdown has seriously aggravated the problem and made the task of reversing the domestic downturn much more difficult. For an adequate appreciation of the country's ongoing economic slide, this paper considers the domestic as well as the external factors at work both before and during the crisis.

Budgetary Rules and Plan Financing

In the approach paper to the Eleventh Five-Year Plan, the Planning Commission has proposed a redefinition of the revenue deficit, concentration only on the primary and fiscal deficits as control variables, and an adjustment of the deficits for cyclical variations in gross domestic product. Importantly, the PC has also questioned the very compatibility of the targets under the Fiscal Responsibility and Budget Management Act with the imperatives of plan expenditure and its phasing over time. All these have drawn adverse criticism from the finance ministry and the Reserve Bank of India. After setting out the basics pertaining to the various budget deficits and the economic reasons for their targeting, this article examines the main issues in the debate among the three policy formulating bodies.

On Liberalising Foreign Institutional Investments

This paper critiques the approach and recommendations of the 2004 government of India expert group on foreign institutional investment flows. The groupâ??s approach raise several important analytical and policy issues. The most crucial of these relate to effects of FII flows on (a) aggregate and sectoral investment; (b) behaviour of financial, including foreign currency, markets with special reference to their volatility; and (c) efficacy of fiscal and monetary instruments in attaining the objectives of macrostabilisation and growth. The article examines the macroeconomic impact of FII flows in the light of the Indian experience, and draws some policy conclusions regarding the role of such flows. It also addresses the issue of volatility in the Indian context. It finds there is no coherent macroeconomic model behind the expert groupsâ??s analysis and recommendations; no appraisal either of the optimal scale of capital inflows or the relative merit of FII vis-à-vis other categories of capital receipts at the current juncture of the economy; and no examination of monetary/fiscal problems associated with FII or of the quantitative impact of such flows on investment and other macro variables.