ET2006 ⁽¹⁰⁾

Is the current growth in India we observe represent a business cycle effect or the country has shifted to a higher growth path? I argue that it is the latter.Without rapid expansion of the unskilled-labour-intensive industry, progress towards poverty reduction and transition to a modern economy will remain far slower than is feasible. Read full article Abstract: Real gross domestic product (GDP) at factor cost has grown 8.1% annually in the last three years (2003-04 to 2005-06). A key question is whether this rate represents a business cycle effect or fundamental shift in the trend growth rate. The accompanying chart helps explain the complexity of the issue. In the first three years of the 1990s, the GDP grew 4% annually. In the following four years, the growth rate jumped to 7.1% but only to fall back to 5.2% in the succeeding five years. Underlying these fluctuations, the trend growth rate was approximately 6%.

Professor Pranab Bardhan of the University of California at Berkeley has recently resurrected inequality as the key explanation for the impasse on the reforms (Financial Times, August 8, 2006). Is his claim right? At least as a general proposition, the link between inequality and the ability to implement reforms is highly tenuous.It is the collective action theory, pioneered by the late Professor Mancur Olson, rather than inequality that explains better the past reforms and current impasse. Read full article Abstract: Professor Pranab Bardhan of the University of California at Berkeley has recently resurrected inequality as the key explanation for the impasse on the reforms (Financial Times, August 8, 2006). He rightly argues that the recent claims of greater equality in India are in error since they compare the consumption inequality in India with income inequality in other countries. Because the rich save proportionately more than the poor, measures of consumption inequality are lower than of income inequality, biasing the comparisons in favour of India. For consistency, Prof Bardhan compares wealth inequality for which comparable cross-country data are available. For the year…

Tarapore Committee-II on capital account convertibility is due to table its report on July 31, 2006. Tarapore Committee-I, also appointed at the urging of Mr P Chidambaram during his first tenure as the finance minister, had recommended full convertibility within three years, ending 1999-2000 with specific goal posts adopted. The Asian financial crisis sealed the fate of that recommendation but the FM has once again revived the issue. We offer five reasons why India should not rush into convertibility.India should stay course on the reforms, including increasing the role of the private sector in the financial markets, without committing to a specific timetable for full rupee convertibility. Read full article Abstract: Tarapore Committee-II on capital account convertibility is due to table its report on July 31, 2006. Tarapore Committee-I, also appointed at the urging of Mr P Chidambaram during his first tenure as the finance minister, had recommended full convertibility within three years, ending 1999-2000 with specific goal posts adopted. The Asian financial crisis sealed the fate of that recommendation but the FM has once again revived the issue. We offer…

With the Doha Round at a critical juncture, India has a historic opportunity to seize the leadership role in bringing the Round closer to a successful conclusion. Such an initiative promises to place India among key players on the world stage as it seeks the Indo-US nuclear deal and a permanent seat on the Security Council. Read full articleBy moving ahead of the curve and offering real concessions in manufactures and services in return for concessions for its own exports. Abstract: By moving ahead of the curve and offering real concessions in manufactures and services in return for concessions for its own exports, India can take credit for moving the Doha Round forward. With the Doha Round at a critical juncture, India has a historic opportunity to seize the leadership role in bringing the Round closer to a successful conclusion. Such an initiative promises to place India among key players on the world stage as it seeks the Indo-US nuclear deal and a permanent seat on the Security Council. The challenge and the opportunity for India are best understood against the progress…

The embrace of pro-market reforms by the Left Front government of West Bengal notwithstanding, anti-reform scholars continue to express skepticism towards them. Distinguished Princeton political scientist Atul Kohli has fired the latest shot on their behalf. The anti-reform scholars hold that the Indian economy grew 6% per annum during the ‘80s and that the development strategy then was pro-business, not pro-market. Read full article Abstract: The embrace of pro-market reforms by the Left Front government of West Bengal notwithstanding, anti-reform scholars continue to express scepticism towards them. Distinguished Princeton political scientist Atul Kohli has fired the latest shot on their behalf in an article in the Economic & Political Weekly (April 1, 2006). Virtually all sceptics rest their critique on a syllogism. Their first premise is that the shift in the growth rate to 6% took place a decade before the 1991 reforms. For example, Kohli opens with the assertion, “For the last quarter of a century, India’s economy has grown at an average rate of nearly 6% per annum.” The second premise of the critics is that the development strategy in…