Economic Times ⁽²¹⁸⁾

Some of the most important reforms have been shelved and many bad policy proposals are being floated in the name of reform, dimming the prospects for double-digit growth under the present government. According to an old joke, Indian economists are divided into two types: pessimists and optimists. The pessimist says that there is so much wrong with the Indian economy that he cannot imagine it getting any worse and the optimist says he can. The changes in the past fifteen years have, of course, relegated this joke to history. We now only argue about whether India can push the current growth rate of 5 to 6% significantly up. Speaking on behalf of the optimists, I have argued for some time that a double-digit growth is well within India’s grasp. India still remains well inside its true production possibilities’ frontier, which makes further acceleration of the growth rate a perfectly feasible task. Sceptics might say that this is not possible without a major increase in the savings rate but the savings rate is itself known to rise with rising incomes. Viewed…

Politicians seeking limelight have focused disproportionately on the achievements in the information technology sector, fuelling the impression that reforms have helped only a blessed few. But this is a gross distortion of the true picture. Read full article Abstract: India's economic problems are a domestic creation. That's the word coming in from Arvind Panagariya the economics professor at Columbia University. In an exclusive chat with CNBC-TV18's Siddharth Zarabi, Panagariya said India took growth for granted and the last 10 years has been a 'lost decade'. But he also expressed hope that the economy can turnaround over the next 12 months. "My own assessment is that we are seeing a little too grim. I personally have been an optimist on the Indian economy. I feel little disheartened for sure in view of the lot of the indicators but I think in another year – year and a half you will see the turnaround happening," he says. "It is things that we did not do right in the last several years. My own thinking is that we lost almost 10 years, certainly…

The recent episode of the flirtation by the ministry of finance with the idea of effectively nationalising the Infrastructure Development Finance Corporation (IDFC), resignations by seven senior executives of the corporation in response, and the subsequent backtracking by the ministry offers an unusual glimpse of the vestiges of the pre-reform-era thinking in the ministry The recent episode of the flirtation by the ministry of finance with the idea of effectively nationalising the Infrastructure Development Finance Corporation (IDFC), resignations by seven senior executives of the corporation in response, and the subsequent backtracking by the ministry offers an unusual glimpse of the vestiges of the pre-reform-era thinking in the ministry. It also illustrates graphically the discipline the reforms have come to impose on the ability of the government to reverse course. For readers who are unfamiliar with this fascinating episode, let me begin by recalling that IDFC is the largest private body devoted to infrastructure financing in India today. It was created in February 1997 to serve as a vehicle to channel private capital into commercially viable infrastructure projects and to advice…

Some influential politicians in the United States are advocating policies that threaten to repeat the mistake made by India nearly two decades ago. They argue that outsourcing is behind the massive losses of white-collar jobs in the US and would like to impose restrictions on it. But the argument is flawed. In the 1980s, when the software industry was just beginning to emerge, policy makers in India decided they would require the software firms to employ domestically sourced computers. They thought this would create a larger number of well-paid jobs in both software and hardware industries. But the policy backfired. Thanks to the poor quality of domestic computers, the software industry failed to take off. Neither hardware nor software jobs got created until after India opened up computer imports. .Some influential politicians in the United States are advocating policies that threaten to repeat the mistake made by India nearly two decades ago. They argue that outsourcing is behind the massive losses of white-collar jobs in the US and would like to impose restrictions on it. But the argument is flawed. Thus,…

While interest rates have declined dramatically recently, private investment has remained stagnant. Why and how do we get out of this trap? Economic Times February 25, 2004 While interest rates have declined dramatically recently, private investment has remained stagnant. Why and how do we get out of this trap? This is a somewhat technical question but can be understood with a little patience. The starting point for the answer is the powerful savings-investment identity, which says that investment in an economy equals the savings available to it. In an open economy, there are three sources of savings: private, government and foreign. Likewise, there are two broad categories of investment: private and government. Measuring all variables as a proportion of GDP and denoting government and private investments by Ig and Ip and government, private and foreign savings by Sg, Sp and Sf, respectively, the identity can be written as Ig + Ip = Sg + Sp + Sf. Government investment includes investment in infrastructure, health and education. Private investment refers to investment in plant, machinery and buildings by firms. Private savings…