Economic Times ⁽²¹⁸⁾

Most analysts agree that India must urgently bring its gigantic fiscal deficit down. The real question is how precisely to do it: through tax hike or expenditure cut? The two remedies have very different effects on aggregate savings and therefore investment.India has to lower its fiscaldeficit and the best way to do that is by both raising tax revenues and cutting expenditure. Dogmatic insistence on just one route to fiscal discipline is ill-advised, says Arvind Panagariya Read full article Most analysts agree that India must urgently bring its gigantic fiscal deficit down. The rare exceptions occur only in the context of the defence of specific, favourite expenditure proposals. For instance, Mrs Sonia Gandhi and the Left parties would sacrifice deficit reduction if it means a compromise on the National Employment Guarantee scheme. Likewise, between higher expenditure on infrastructure and lower fiscal deficit, the Planning Commission deputy chairman would probably opt for the former. But in the broader macroeconomic context, even these exceptions yield to the necessity of deficit reduction. The real question confronting India therefore is how precisely to bring the deficit…

US academics, journalists and entrepreneurs as also visiting senior officials from India have fed the American fears that Indians (and Chinese) are coming in large hordes to take away American jobs. Are they right? Economic Times July 27, 2005 FEAR has big eyes. So goes a Russian proverb. The truth of the proverb is nowhere more apparent than in the American fears that Indians (and Chinese) are coming in large hordes to take away American jobs. US academics, journalists and entrepreneurs as also visiting senior officials from India have consciously or unconsciously contributed to these fears. Harvard Professor Richard Freeman writes that had India, China and the former Soviet Union not entered the world economy in the 1980s and 1990s, the global workforce in 2000 would have been only 1.46 billion. The entry of these countries has added 1.47 billion workers and, thus, cut the global capital-labour ratio to 55 to 60% of what it would have been otherwise. Freeman concludes that this means substantially lower wages for American workers the next thirty years. Journalist Thomas Friedman of the New…

Recently, the Finance Minister said the investment boom was leading to large trade deficit and he wants to cure it by opening the floodgates of foreign investment. But the minister got it exactly wrong: if increased foreign investment is to finance the domestic investment, the current account deficit MUST rise! It is simply a matter of understanding the savings-investment and balance-of-payments identities.Raising investment without lowering fiscal deficit is not sustainable in the long run unless we get lucky and households decide to increase their savings in a big way. Read full article A common misconception among policy makers and analysts is that trade deficit can be cured by increased foreign investment. According to one report, even the finance minister seems to have suggested this prescription for India’s rising trade deficit (‘FM to open FDI floodgates to keep trade deficit in check,’ ET May 23, 2005). Interestingly, however, the correct relationship is just the other way around: an increase in foreign investment increases trade deficit. (‘FM to open FDI floodgates to keep trade deficit in check,’ ET May 23, 2005). Interestingly, however, the…

The combined fiscal deficit of the centre and the states in India has been running at around 10% of the GDP since 1999. India has also accumulated a large public debt that stands between 80 and 85% of the GDP currently. These facts have led many to suggest that India may be heading towards another macroeconomic crisis. Economic Times Wednesday, 18 May 2005 The combined fiscal deficit of the centre and the states in India has been running at around 10% of the GDP since 1999. India has also accumulated a large public debt that stands between 80 and 85% of the GDP currently. These facts have led many to suggest that India may be heading towards another macroeconomic crisis. Fiscal deficit is said to exist when the total expenditures of the government exceed its total revenues. Just like the households living beyond their means, the government must borrow to bridge the gap between its expenditures and revenues. The borrowing adds to the debt. If the borrowing is from domestic sources, it contributes to the 'internal' debt and if it…

The case for an India-China FTA is based principally on its strategic value. During the last decade, with the creation of the NAFTA, several expansions of the EU and a host of smaller FTAs in Latin America, Asia has suffered from a diversion of these regions' trade away from it. One response to this trade diversion for Asia would be to move towards a bloc of its own. Such a bloc may give Asia the necessary leverage to pry open the NAFTA and EU blocs to outsiders through multilateral liberalization. Economic Times April 20, 2005 India-China trade is among the fastest growing bilateral trade relationships in the world currently. According to the Indian Commerce Ministry data, India's exports to China rose from a paltry $18 million in 1990-91 to approximately $3 billion in 2003-04. India's imports from China expanded equally rapidly, from $35 million to $4 billion over the same period. So rapid has this expansion been that from an insignificant supplier until the beginning of the 1990s, China has now come to replace the United States as India's top…