Globalization, Growth and Poverty in India

globalization, economic growth, poverty, inequality, population shift effect, decomposition, India

Fiscal consolidation with high growth: A policy simulation model for India.

In this paper a fiscal consolidation program for India has been presented based on a policy simulation model that enables us to examine the macroeconomic implications of alternative fiscal strategies, given certain assumptions about other macro policy choices and relevant exogenous factors. The model is then used to estimate the outcomes resulting from a possible strategy of fiscal consolidation in the base case. The exercise shows that it is possible to have fiscal consolidation while at the same time maintaining high GDP growth of around 8 percent or so. The strategy is to gradually bring down the revenue deficit to zero by 2014-15, while allowing a combined fiscal deficit for centre plus states of about 6 percent of GDP. This provides the space for substantial government capital expenditure, which translates to a significant public investment program. This in turn leads to high overall investment directly and indirectly, via the crowding in effect on private investment, which drives the high GDP growth. The exercise has also tested the robustness of this strategy under two alternative scenarios of higher and lower advanced country growth compared to the base case.Macroeconomic modelling, Policy simulation, Fiscal policy, India

Fiscal Consolidation with High Growth : A Policy Simulation Model for India

In this paper a fiscal consolidation program for India has been presented based on a policy simulation model that enables us to examine the macroeconomic implications of alternative fiscal strategies, given certain assumptions about other macro policy choices and relevant exogenous factors. The model is then used to estimate the outcomes resulting from a possible strategy of fiscal consolidation in the base case. The exercise shows that it is possible to have fiscal consolidation while at the same time maintaining high GDP growth of around 8% or so. The strategy is to gradually bring down the revenue deficit to zero by 2014-15, while allowing a combined fiscal deficit for centre plus states of about 6% of GDP. This provides the space for substantial government capital expenditure, which translates to a significant public investment program. This in turn leads to high overall investment directly and indirectly, via the crowding in effect on private investment, which drives the high GDP growth. The exercise has also tested the robustness of this strategy under two alternative scenarios of higher and lower advanced country growth compared to the base case.Macroeconomic Modelling, Policy Simulation, Fiscal Policy, India

Economic Growth, Poverty, and Inequality in Indian States in the Pre-reform and Reform Periods

The paper assesses the impact of economic reforms on poverty incidence by decomposing the change in poverty ratio into growth/mean effect, inequality effect, and population shift effect for the rural and urban areas of 15 major states and at the all-India level. Using National Sample Surveys, data were analyzed for two time periods: (i) 1983 to 1993/4 and (ii) 1993/4 to 1999/2000, broadly representing the pre-reform and reform period, respectively. The growth/mean effect dominates in both periods over the inequality effect and the population shift effect. The growth effect, which is beneficial for poverty reduction, seems to have gone up in the reform period. The adverse inequality effect also fell during the reform period. States with a greater beneficial growth effect in the reform period also show a fall in the magnitude of an adverse population shift effect in the urban areas, i.e., a relatively smaller increase in the incidence of urban poverty caused by rural-urban migration

Declining poverty in India: A Decomposition analysis

In an attempt to delineate sources of change in poverty in India and to assess their relative contributions in reducing (or raising) the poverty incidence in the eighties and nineties this paper employs two decomposition exercises. The first one expresses the percentage change in the poverty index between two time points into growth effect, inequality effect and the population shift effect and the second one measures it in terms of changes in per capita income (GDP), sectoral composition of value added, labour productivity and employment in organized manufacturing relative to the poor who are largely engaged in low productivity activities. The growth effect which dominates over the inequality and population shift effects caused poverty to decline both in the eighties and nineties. A rise in the beneficial effect of growth both in the rural and urban areas and a fall in the adverse inequality and population shift effects in the urban areas in the nineties compared to the eighties, are noteworthy. The change in the composition of growth (the shift in value added mix towards industry and tertiary activities) seems to have caused a larger decline in the incidence of poverty in the nineties than the eighties. Labour productivity growth and employment growth in the organized industry are also important for poverty reduction. Economic reforms seem to have a positive effect on the levels of living though a great deal needs to be done to reduce inequality in the process of growth and make the latter pro-poor.

Modeling interest rate cycles in India

The present study tries to examine the behaviour of various Indian interest rates such as call money rate, and yields on secondary market securities with maturity periods of 15-91 days, 1-year, 5-years and 10-years. In the first stage, the study investigates the determinants of interest rates and finds that although the interest rates depend on some domestic macroeconomic variables such as yield spread and expected exchange rate, they are mainly affected by the movements of international interest rates, although with some lags. The policy variables such as Bank Rate and Federal Funds Rate did not show any significant impact on any of the interest rates. Further, it was found that the interest rates in the very recent period show some cyclical movements similar to that of the developed countries. Future behaviour of interest rates show that the present cycle of each interest rate would peak at different time points. This expected behaviour in domestic interest rates could be due to the integration of the domestic economy with the international money and financial market. This trend may be same in most of the emerging economies of Asia.

Fiscal Consolidation with High Growth A Policy Simulation Model for India

In this paper a fiscal consolidation program for India has been presented based on a policy simulation model that enables us to examine the macroeconomic implications of alternative fiscal strategies, given certain assumptions about other macro policy choices and relevant exogenous factors. The model is then used to estimate the outcomes resulting from a possible strategy of fiscal consolidation in the base case. The exercise shows that it is possible to have fiscal consolidation while at the same time maintaining high GDP growth of around 8% or so. The strategy is to gradually bring down the revenue deficit to zero by 2014-15, while allowing a combined fiscal deficit for centre plus states of about 6% of GDP. This provides the space for substantial government capital expenditure, which translates to a significant public investment program. This in turn leads to high overall investment directly and indirectly, via the crowding in effect on private investment, which drives the high GDP growth. The exercise has also tested the robustness of this strategy under two alternative scenarios of higher and lower advanced country growth compared to the base case. [Working Paper No. 2010-73]Macroeconomic Modelling, Policy Simulation, Fiscal Policy, India

A search for long-range dependence and chaotic structure in Indian stock market

This study tests for the presence of nonlinear dependence and deterministic chaos in the rate of returns series for six Indian stock market indices. The overall result of our analysis suggests that the returns series do not follow a random walk process. Rather it appears that the daily increments in stock returns are serially correlated and the estimated Hurst exponents are indicative of marginal persistence in equity returns. Result from the test of independence on filtered residuals suggests that the existence of nonlinear dependence, at least to some extent, can be attributed to the presence of conditional heteroskedasticity. It appears, therefore, that low order GARCH-type models can adequately explain some, but not all, of the observed nonlinear dependence in the data. Further, we find very little evidence to support the proposition that returns are generated by a chaotic system. Only in two out of six cases the results are supportive of sensitive dependence on initial condition, which indicates chaos. Presence of chaos in market indices implies that profitable nonlinearity based trading rules may exist at least in the short-run. Finally, fairly contrary to the findings of previous studies, rejection of random walk hypothesis offers some possibility of returns predictability.Random walk Long-memory Nonlinear dependence Deterministic chaos