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

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Financial and Distributional Implications of the Food Security Law

The financial implications of the National Food Security Bill, which has now become law, are going to be huge. This analysis points out that one needs to take into account not only the cost of the food subsidy but also the costs of setting up or running new institutions and bureaucracies, and the costs that are likely to arise if there are political pressures to protect the existing beneficiaries. There are still more imponderables, and the fi nal cost could add up to much more than what is now estimated.

Has India's Growth Story Withered?

This paper analyses the growth performance in India over the past two decades. It uses several statistical and economic methodologies to estimate the growth rate of potential output. The annual growth rate of potential output is estimated for 2011 to be in the range of 7.7-8.2%. All the estimation techniques suggest that there was a big boost to potential growth between 2002 and 2007, but since then it has not increased significantly. Based on statistical approaches and conditional on moderate annual growth forecasts of 7-7.5% between 2012 and 2014, there is some evidence that the recent decline in growth is likely to be driven by structural factors. Most of the methodologies indicate that the output gap continues to be positive, suggesting caution in further loosening of the monetary policy stance. Overall, while the Indian growth story may/may not have withered, the evidence does give indications that the growth story may have faltered.

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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