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

A+| A| A-

Real Exchange Rate, Fiscal Deficits and Capital Flows: Refutation Again

Real Exchange Rate, Fiscal Deficits and Capital Flows: Refutation Again VIJAY JOSHI Deepak Lal, Suman Bery and Devendra Kumar Pant (hereafter LBP) claimed in an article in this journal that India sacrificed a substantial amount of growth in the decade of the 1990s as a consequence of accumulating foreign exchange reserves [Lal et al 2003]. In particular they claimed that if the reserves had been absorbed, India would have grown by anything up to 8.5 per cent per year, not the 5.8 per cent that actually occurred. I disputed this claim in Joshi (2004) and argued that in the same counterfactual scenario, India

D eepak Lal, Suman Bery and Devendra Kumar Pant (hereafter LBP) claimed in an article in this journal that India sacrificed a substantial amount of growth in the decade of the 1990s as a consequence of accumulating foreign exchange reserves [Lal et al 2003]. In particular they claimed that if the reserves had been absorbed, India would have grown by anything up to 8.5 per cent per year, not the 5.8 per cent that actually occurred. I disputed this claim in Joshi (2004) and argued that in the same counterfactual scenario, Indias growth rate would have been at most 6.2 per cent per year.1 John Williamson (2004), in his comment on Joshi and Sanyal (2004), concurred with the view that LBP had made an analytical mistake. In their reply, LBP have defended their original claim [Lal et al 2005]. In what follows, I shall make another (and final) attempt to show that their claim is based on false reasoning.2

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Or

To gain instant access to this article (download).


Pay
INR 59

(Readers in India)


Pay
$ 6

(Readers outside India)

Support Us

Your Support will ensure EPW’s financial viability and sustainability.

The EPW produces independent and public-spirited scholarship and analyses of contemporary affairs every week. EPW is one of the few publications that keep alive the spirit of intellectual inquiry in the Indian media.

Often described as a publication with a “social conscience,” EPW has never shied away from taking strong editorial positions. Our publication is free from political pressure, or commercial interests. Our editorial independence is our pride.

We rely on your support to continue the endeavour of highlighting the challenges faced by the disadvantaged, writings from the margins, and scholarship on the most pertinent issues that concern contemporary Indian society.

Every contribution is valuable for our future.