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

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Will COVID-19 Change the Landscape of Financing Innovation in India?

The COVID-19 pandemic may affect the financing opportunities for innovation. The revenue loss induced by the pandemic is likely to divert the existing resources in aiding firm survival and economic recovery, with financing innovation taking the back seat. Highlighting the current state of innovation in the country, the rise of the country in its innovation ranking and its existing sources of funding is brought to the forefront. Various avenues presently exist for this purpose and more outlets could be explored to boost the funds for innovative efforts. Experience and policies of other emerging economies can help devise suitable measures that could further enhance India’s trajectory up the innovation ranking.

Fiscal Federalism and Regional Inequality in India

In all federal structures, the composing units are not self-sufficient financially. But, in India, the economic dependence of states on the centre is rather high because of widespread disparities in their levels of economic development. The federal transfers to the states through the Finance Commission, Planning Commission and centrally-sponsored schemes are investigated. The role of the union government in equitable direct investment, subsidy, and private investment policy for unbiased regional development is also underlined . The data proves that although the Finance Commission’s transfers are progressive, the share of devolution for low-income states is gradually decreasing. Unfortunately, all other transfers and efforts by the centre are regressive to address the regional inequality issues.

Can Jan Dhan Yojana Achieve Financial Inclusion?

While there has been a tremendous increase in the number of bank accounts opened, the data show that the average balance in these accounts is low and a significant proportion of the accounts are inoperative. Although there was a rise in the average deposits during demonetisation, they later settled at a lower level. Further, financial inclusion means not just the opening of bank accounts but, more importantly, access to credit from formal sources. The limited data available in this regard show that after the Pradhan Mantri Jan Dhan Yojana was launched there has not been any increase in the credit–deposit ratio and the share of small loans has continued to decline. Very few people have benefited from the overdraft facility that is supposed to be provided by the accounts under the scheme. Issues of access to banking in rural areas remain.

Deciphering Financial Literacy in India

Utilising a nationally representative data set, an index of financial literacy consisting of financial knowledge, behaviour, and attitude is constructed. The findings suggest significant variation in financial literacy across states with an over 60 percentage point difference between the state with the highest financial literacy and that with the lowest. Multivariate regressions show that there exist large and statistically significant gender-, location-, employment-, education-, technology-, and debt-driven differences in financial literacy. Much of the observed regional divergence persists even after we control for cohort effects.

Long-run Determinants of Sovereign Bond Yields

Keynes’s supposition of short-term interest rates as the key driver of long-term government bond yields is investigated for India, after controlling for various key economic factors. It is seen that long-term interest rates of Indian government bonds are positively associated with the short-term interest rates of Treasury Bills. Higher long-term interest rates on IGBs are influenced by higher short-term interest rates, higher rates of inflation, a faster pace of industrial production and higher fiscal deficit (and vice versa). The bond market was disrupted during 2013 when yields rose sharply in India. Incorporating this structural break improved our findings.

Can Central Banks Reduce Inflation?

To explore the empirical validity of the proposition that a rise in the interest rate would necessarily lead to a lower rate of inflation, empirical evidence from 158 countries, during 1981 to 2013, is used to critically evaluate this widely accepted idea. Based on the findings, it is argued that from a policy perspective, the so-called “inflation targeting” should be revisited.

Demand-led Growth Slowdown and Inflation Targeting in India

A variety of indicators are presented to show that demand restricted output during the growth slowdown of 2011–17. The macroeconomic structure of the economy is such that a policy-induced demand contraction affects output more than it affects inflation. In this context it is important to evaluate the application of inflation targeting. Flexible inflation targeting was too narrowly and strictly implemented initially, although there are signs of moderation in 2018. Since inflation forecasts were biased upwards, the more effective expectations anchoring channel of inflation targeting was underutilised. The output sacrifice imposed was higher than necessary. Finally, possible mechanisms to ensure inflation targeting is implemented flexibly as required in the Indian context are discussed.

Foreign Finance, Real Exchange Rate, and Macroeconomic Performance in India

The paper examines whether financial inflows cause economic contraction in India through appreciation of the rupee. To this end, it formulates a structuralist macroeconomic model and calibrates it to India’s national income accounts. It then simulates and analyses an alternative scenario involving greater inflow of foreign finance. It is seen that real exchange rate appreciation, despite its negative effect on trade surplus, stimulates real wages and consumption demand. The paper does not endorse complete capital account convertibility but warns against a blanket approach towards different forms of foreign finance.

Monetary Economics of Fascism and a Working-class Alternative

Fascism is the usurpation of the economic process by the elite and the related decimation of the working class and the poor. This process is represented by the shrinkage of fiat money backing the production of goods and services and its substitution by financial instruments. This domestic coup is accomplished by the spread of what is generally referred to as “false consciousness.” The tools of basic economics can be fashioned to introduce students to these concepts. Mainstream economists continue to demonstrate the different ways utility functions can be manipulated.

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