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

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Can the Public Sector Revive the Economy?

The public sector's share in domestic output has stagnated since the late 1980s, its share in capital stock has fallen since 1990, and employment has contracted by 10% from the mid-1990s. Why has it fared so poorly even as its financial performance has improved? This paper argues that fiscal orthodoxy has throttled government borrowing for investment, and competitive politics has disallowed rational pricing by public utilities and recovery of user charges. If these constraints are relaxed by suitably adjusting fiscal deficit targets to accommodate the rise in input costs, and the prices of public utility services are adjusted for inflation, the public sector can revive the economy. Growing public sector enterprises with financial surpluses could also accommodate some political-economic demands.

Do Not Dilute NREGA

[An Open Letter to the Prime Minister on NREGA by economists based in India and elsewhere in the world.] We are writing to express our deep concern about the future of India’s National Rural Employment Guarantee Act (NREGA). The NREGA was enacted in 2005 with unanimous support from all political...

Economic Challenges to the New Government

India faces two distinct uncertainties in the short run: the nature of the electoral outcome, and the reduction in the United States' bond buying programme. The potential shocks could cause short-term volatility, though the economy now seems better placed than a year ago to face the challenge. Yet, stabilisation does not ensure economic revival. Stepping up investment demand, without jeopardising the current account balance and increasing external debt would be the key to sustainable growth. As the private corporate sector is mired in debt, a pragmatic increase in public investment by revisiting fiscal rules is the only credible option. A complete pass-through of fuel prices to domestic consumers would encourage investment in the industrial and energy sectors, while an easy credit for agriculture and small-scale industry is likely to augment wage goods output to restrain the rise in consumer prices.

Have Gujarat and Bihar Outperformed the Rest of India?

In the popular and media imagination, fed by economists and columnists, Gujarat and Bihar have both recorded an extraordinary economic performance in the past decade. But a careful analysis shows that Gujarat, always one of the richest states, has done no better than before. In neither industry nor agriculture has its position radically changed. The only dramatic difference has been the emergence of import-dependent and export-oriented petroleum refining, which has few linkages with the state economy. As in the past decades, Gujarat's social development continues to lag behind its economic development. Likewise, Bihar's position at the bottom of the league has not changed dramatically. Change seems to take place very slowly at the regional level.

India's Dream Run, 2003-08

The web version of this article corrects a few errors that appeared in the print edition. From 2003, the Indian economy enjoyed a boom in growth for five years. The economy grew at a rate close to 9% per year, until it was punctured by the financial crisis of 2008. What explains that boom? Did the sustained liberal reforms finally pay off? Or was it a debt-led, cyclical boom, coinciding with an exceptional phase in the world economy? This paper contends that it was the latter case, driven by private corporate investments, financed by rising domestic savings, and topped by unprecedented inflows of foreign capital- leaving behind heightened corporate leverage, and frothy asset markets. As the global economy faces a semi-slump and precarious macroeconomic balance, how to reverse the current slowdown is at the crux of the discourse on India's policy paralysis. With the corporate sector mired in over-leverage, perhaps the most credible policy options now available are to step up public infrastructure to boost investment demand, and expand bank credit on easy terms to the informal sector and agriculture - which were throttled during the boom years - so as to ease supply constraints.

Growth in Organised Manufacturing Employment: A Comment

Bishwanath Goldar's argument that the rapid growth in employment in organised manufacturing between 2003-04 and 2008-09 can be explained by labour reforms at the state level does not stand up to close statistical scrutiny. Employment growth did accelerate but when viewed over a longer period the accretion as yet remains small.

Booming Bihar: Fact or Fiction?

In recent weeks, much has been made of a "booming" Bihar. But a look at disaggregated data shows that the growth has been based almost entirely on the public works programme, which boosted state output in construction during the boom in that sector from 2004-05 to 2006-07. Despite this, value added in construction seems overestimated, given the infirmities in estimation methods. Further, there has been no measurable multiplier effect of this infrastructural investment on the rest of the Bihar economy.

Is Services Sector Output Overestimated? An Inquiry

India's services sector-led growth since the 1990s remains a puzzle - it has taken place at a low level of per capita income, without a proportionate transformation in the workforce, and amidst a deceleration in agriculture and a stagnation in industry. This paper argues that the output of services is perhaps overestimated since computing value added in services and finding suitable price deflators for them is difficult even in the best of circumstances. The answer to the puzzle, therefore, lies (at least partially) in the deterioration in economic statistics, and the use of a widely acknowledged faulty methodology. More specifically, services output seems overestimated due to (i) the inflated estimate of the growth of the private corporate sector, (ii) a slower rise in the services deflator, and in particular (iii) of an overstatement of the decline in the prices of communications services.

India's Recent Economic Growth: A Closer Look

The Indian economy turned around after 2002-03, clocking a growth rate of 8.7 per cent per annum, based on an industrial recovery, a sustained growth in services (especially communications and business services), and growing exports during a boom in world trade. However, the poor and deteriorating quality of statistics seem to question the extent of the upswing. But the fact that growth has been underpinned by an unprecedented rise in the fixed investment to gdp ratio cannot be denied. For the first time, consumer credit in a low interest rate regime has boosted the demand (sweetened by fiscal concessions) for consumer durables and housing. However, the deceleration in agriculture (particularly foodgrains) and a decline in the share of fixed investment in infrastructure and industry cast doubt prima facie on the optimism about the future.

Indian Investments Abroad

The Tata-Corus and Videocon-Daewoo deals are the most recent and largest of Indian investments and acquisitions abroad, but the trend has been in evidence since the early 2000s. There are domestic reasons and international factors propelling Indian outward flows; and industry specific factors have also contributed to the trend. Success, however, is not guaranteed.

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