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

Ravindra H DholakiaSubscribe to Ravindra H Dholakia

Understanding Indian Economic Growth:Some Observations

 Discussion Understanding Indian Economic Growth: Some Observations Ravindra H Dholakia The history of economic growth after independence in India has been an active field of empirical research leading to debates on effectiveness of policy regimes. The latest contribution by Balakrishnan and Parameshwaran (henceforth B-P, 2007), published in EPW on July 14, applying the state of the art statistical techniques to find breakdates in the time trend of the gross domestic product (GDP) endogenously, is a welcome addition to this literature. The purpose of this note is to consider a few findings of earlier studies (missed out by B-P 2007) and thereby add to our outstanding of Indian economic growth. Had B-P gone back to 1992 for selecting their references, they would have found at least three studies directly relevant to their methodology and findings. These appeared in the Indian Economic Journal [Ganesh Kumar 1992], Indian Economic Review [Dholakia R H and Dholakia B H, 1993] and EPW [Dholakia R H 1994]. The first one applied the state of the art statistical techniques (available at that time) to the Indian GDP data from 1950-51 to 1989-90 and found breakdates for three broad sectors

Sources of Economic Growth and Acceleration in Gujarat

This article examines the growth experience of Gujarat in 17 sectors during the pre-reform period of 1980-92 and the reform period of 1991-2004, identifying strengths and weaknesses. It identifies episodes of high economic growth in each sector in the state over the last two decades and then derives the plausibly optimistic growth potential of the state. In order to examine the feasibility of such optimistic growth targets, a preliminary attempt is made to estimate traditional sources of economic growth in Gujarat in the neoclassical growth accounting framework for the primary and non-primary sectors in the two sub-periods. The article also offers a strategy and policy changes necessary to ensure that higher growth in Gujarat does not take place at the cost of other states, but benefits the nation as a whole.

Consistent Measurement of Fiscal Deficit and Debt of States in India

There are differences in the definition of debt used by different bodies like the state governments, Reserve Bank of India, Office of the Comptroller and Auditor General of India and the Finance Commission. Moreover, none of these definitions satisfy the criterion that fiscal deficit in a given year should equal the sum of increase in debt and monetisation. This paper builds on this basic criterion to derive a theoretically consistent and appropriate definition of debt. The definition is then used to estimate debt for 18 non-special category states and 10 special category states for the period 1989-90 to 2003-04 and obtain effective interest rates for these states. We observe that non-special category states have a significantly greater probability of fiscal sustainability than the special category states. Moreover, when the trend in the proportion of debt of each state in the aggregate of all states is compared with trends in similar proportions of fiscal transfers from the centre and that in the primary deficit on own account, we find that certain states have benefited by largesse from the centre despite a consistently bad performance, while certain performing states have been penalised by reduced fiscal transfers.

Is India's Central Debt Sustainable?

This paper revisits the proposition that India?s debt problem is unsustainable in light of the recently changed outlook for growth and interest rates. Using a decomposition model, it separates out the effects on the fiscal deficit of growth and government behaviour in the past. If recent government behaviour were to continue, the economy would need to grow at 6.1 per cent in the coming years for the centre?s debt to be sustainable, a growth rate that seems eminently achievable. If a real growth rate of 6.2 per cent is posited in the coming years, only a modest degree of fiscal adjustment would be required, or none at all, to reach a tolerable level of the debt to GDP ratio by 2009-10.

Expenditure Allocation and Welfare Returns to Government

A model of government expenditure allocation among sectors is developed and its application is illustrated through the data on major Indian states from 1971 to 1991. It is argued that, at the margin, changes in expenditure allocation are determined not by the magnitude of marginal productivities of the government effort, but by the behaviour of marginal returns in relative terms. Nine indicators from education, health, nutrition and other social sectors measure the index of basic welfare as the output of government efforts. Revenue and capital expenditures of state governments on the economic (physical capital) sectors and social (human capital) sectors are considered over two decades - 1971-81 and 1981-91 to examine the stability of the coefficients.

Regional Disparity in Economic and Human Development in India

This paper examines the trends in regional disparity in India's economic and human development over the past two decades, and the direction of their causality. The Indian regional data suggest a two-way causality between human and economic development. The paper argues that the Planning Commission and the finance commissions need not be unduly concerned about regional imbalance in human or economic development. Emphasis on economic growth is likely to address the issue of disparities in income and human development speedily.

Economic Reforms and Trade Performance

Since 1991-92, India has undertaken widespread policy reforms in order to integrate its economy with the rest of the world. In this fact-finding study, the balance-sheet data of 557 private sector companies are considered with several ratios and indicators of performance and trade behaviour. The companies are divided into exporting and non-exporting groups. On the whole, exporting companies are found to be performing much better than non-exporting ones. The policy reforms have, however, helped the latter to improve their margins, though they have been pushed to the lower end of the domestic markets.

Exchange Rate Pass-Through and Volatility

The exchange rate pass-through and exchange rate volatility are important determinants of the effectiveness of exchange rate depreciation in achieving the desired trade balance. The aggregate analysis of Indian imports and exports with quarterly data from 1980 to 1996 attempted in the present paper reveals India's lack of bargaining power in the international markets both as a buyer and as a seller. The study also indicates that targeting REER in India may not satisfactorily address the concerns for the trade balance, though it may be useful for export promotion.

Liberalisation in Gujarat

The development strategy in Gujarat has been very clear since its inception in 1960 in according a high priority to industrialisation. The impact of economic liberalisation on the state economy should, therefore, be examined in terms of the performance of industrialisation in the state.

Market Structures

Ravindra H Dholakia Industrial Organisation edited by Anindya Sen; Readers in Economics Series by Oxford University Press, Delhi, 1996; pp 533, Rs 650.

Maxi Devaluation and Contraction

THIS is in response to Pronab Sen's reply (EPW, December 14, 1996) to my observations (EPW, November 23,1996) on his lucid exposition 'Cooper's Contractionary Devaluation Hypothesis: A Note' (EPW, July 27, 1996). My main argument was not to show that "contractionary devaluations, at least in the Cooper sense, are at best a curiosm". In fact, I appreciated Sen's analysis that with trade deficit, if the home good and imports are gross complements in consumption, it is possible for the small devaluations to be contractionary. It is also clear that I am in full sympathy with Sen's objective of investigating only the necessary conditions under which devaluations could turn out to be contractionary in the Cooper sense. However, my main point was that Sen's generalisation of these results from his framework to include the case of 'maxi' devaluation requires abnormal demand and supply conditions to be assumed. Sen (EPW, December 14) does not agree with this point because he finds my Figure 1 to be "fundamentally incorrect or, at best, incomplete" since I had "considered only the price effect of a devaluation but not its income effect". He then redraws the figure with exogenous exports (X0) explicitly introduced along with imports (M0) to form a trade deficit. He then goes on to 'show' that my argument, that contractionary maxi devaluations are incompatible with a U-shaped PCC, is not true. According to him the gross complementarity between the home good and imports is not required over the whole range but only within the range defined by the trade deficit relative to the level of imports for the 'maxi' devaluations to be contractionary. And argues Sen, "even in an inward-oriented country like India, this proportion has rarely crossed 20 per cent, and it is usually even smaller in the more open economies of Asia, Africa and Latin America including those which have raced serious balance of payments crises".

Maxi Devaluations and Cooper s Hypothesis

Maxi Devaluations and Cooper's Hypothesis Ravindra H Dholakia IN a recent paper, Pronab Sen has defended Cooper's contractionary devaluation hypothesis in a very interesting and lucid way ('Cooper's Contractionary Devaluation Hypothesis: A Note', EPW, July 27). In the true spirit of macro modelling, he has effectively demonstrated the validity of Cooper's hypothesis with important modifications through the six propositions derived from a simplified macro model. His most important proposition is his Result 4 which states that gross complementarity of home goods and imports in the domestic consumption is the necessary condition for the devaluation to be contractionary. Since it is a distinct (and maybe most likely) possibility to find gross complementarity between the home goods and imports in the domestic consumption in several developing countries, Sen concludes "that 'maxi' devaluations do not always need to be accompanied by contractionary fiscal and monetary policies". Something more is needed to arrive at this conclusion than what is contained in Sen's note.

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