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Why next-generation economic reforms are crucial for reviving investment
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Macroeconomics
Growth, well-being and distribution in India in the last decade – I
As India gets ready to vote in the general election, Balakrishnan and Parameswaran present a comprehensive, evidence-based review of the performance of the Indian economy over the past decade. In the first of a two-part series, they focus on macroeconomic indicators including growth, investment, unemployment, inflation, manufacturing performance, and tax revenues. In part II, they analyse indicators of well-being and investigate how the income distribution may have changed in this time.
Forecasting long-run Indian GDP using high-dimensional big data
This article describes an attempt to forecast of India's long-run GDP, which uses using quarterly data on macroeconomic variables from 1996-2021, and a dynamic factor model to establish long-run trends. It explains how the model controls for exogenous shocks, including rising temperatures and oil prices, as well as changes in monetary and fiscal policies. It suggests that growth will depend either on the implementation of strategies to deal with these exogenous shocks, or on public investment and public service delivery.
Effect of food prices on inflation: Is monetary policy an effective tool?
With rising inflation becoming a global concern, Balakrishnan and Parameswaran discuss some explanations for the high inflation in India. They find that inflation was driven by a domestic rise in food prices rather than by imports. They also dismantle the claim that inflation is being driven by oligopolistic corporate pricing, before evaluating the efficacy of raising repo rates in controlling inflation. They conclude that inflation cannot be managed by monetary policy alone and must include supply-side management of agricultural prices.
India’s debt dilemma
In the fifth article in the Ideas@IPF2023 series, Eichengreen, Gupta and Ahmed reveal how high levels of debt in India limit the resources available for other priorities. At the same time, they predict that there is no immediate crisis of debt sustainability, as institutional factors limit rollover risk, and interest rates have not risen with additional debt issuance. However, financial stability and sustainability risks may arise in the future, and fiscal consolidation would require lower primary deficits achieved through tax revenue generation and privatisation.
Priorities for the G20 Finance Track
Considering the macroeconomic challenges faced by emerging markets, Eichengreen and Gupta outline a few key aspects of the financial agenda that G20 members could address. They discuss seven areas of improvement, including broadening central bank currency swaps, easing access credit lines, reallocating resources to low-income countries, improving the measures used and transparency of credit rating agencies, taking climate-risk into account when lending to vulnerable countries, creating hedging instruments to address currency mismatch, and establishing an effective mechanism for restructuring debts.
Budget 2023-24: Fiscally conservative but lacking economic strategy
The Indian economy’s recovery from the Covid-19 pandemic has not been all good news: employment creation has stagnated, and government capex allocation has not been successful in generating private sector investment. Against this backdrop, Rajeswari Sengupta discusses two missed opportunities for the Union Budget – announcing strong growth-oriented policies, which could help meet the medium-term fiscal deficit target to increase macroeconomic stability; and boosting India's trade competitiveness by reducing import tariffs and focussing on exports.
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