In The Media ⁽⁴⁰⁰⁾

Read full article With the passing away of Thirukodikaval Nilakanta Srinivasan, ‘TN’, the world has lost a true scholar. Intellectually, TN was as formidable as his full name. Personally, he was kind to one and all. He lived his entire life for scholarship —and for a little bit of Carnatic music. Bangladeshi economist M G Quibria, who studied with me at Princeton, used to describe TN as India’s Paul Samuelson. He opined that like Samuelson, TN had complete mastery of mathematical techniques and wrote simultaneously in a large number of fields including international trade, development economics, public finance and econometrics. No Jumbled Numbers… At one level, this was not surprising. Before he did his PhD in economics at Yale, TN had done his BA (Honours) and MA in mathematics, and then received two years of professional training in statistics at the Indian Statistical Institute (ISI), Kolkata, from none other than P C Mahalanobis. At Yale, TN wrote his thesis under the direction of Tjalling Koopmans, the 1975 Economics Nobel laureate. TN returned to India in 1964 and joined the Planning…

Read full article Abstract: Some influential commentators have argued that the time of manufacturing as the engine of growth is now passé. In their view, India must and can race to prosperity on the strength of its services sector alone. I have steadfastly argued, instead, that we must walk on two legs, manufacturing and services. While we must exploit our strengths in services, we also need to significantly accelerate growth in manufacturing, especially labour-intensive manufacturing. Agriculture, which currently employs nearly 45% of the workforce, is obviously not to be neglected. The point, instead, is that those currently deriving their incomes from agriculture would greatly benefit from accelerated growth in manufacturing. Nearly half of India’s farms are less than half hectare, a size too small to yield adequate living standard for a family of five. Owners of these farms will benefit directly if one or more of their family members found good jobs in manufacturing and services. Those continuing to cultivate will benefit from increased land per farmer as some farmers migrate to manufacturing and services. Those who argue that India…

Tariffs from the United States, Canada, China, Mexico, and the EU may have damaged the WTO beyond repair. Read full article Abstract: The World Trade Organization (WTO) might be the first victim of the trade war between China, the United States, and the European Union. Today, each is in flagrant violation of its rules, and the institution’s credibility as the protector of a rules-based trading system is in serious doubt. U.S. President Donald Trump initiated the trade war in March when he announced the imposition of a 25 percent tariff on steel imports and 10 percent tariff on aluminum imports from most countries. In May, he expanded the duty to include imports from Canada, Mexico, and the EU. In a move that surprised few, China reacted by imposing tariffs of its own on an equivalent volume of steel and aluminum imports from the United States. Canada, Mexico, and the EU eventually joined China in retaliating, too.

Read full article An episode from the 1950s illustrates that a failure to use the exchange rate as an instrument of macroeconomic adjustment can be costly. With the exchange rate fixed at 4.76 rupees per dollar during the 1950s, the rupee was overvalued relative to foreign currencies. This made India’s goods expensive relative to foreign goods and resulted in the import bill consistently exceeding export revenues. The gap had to be covered by running down scarce foreign exchange reserves. By early 1958, the reserve almost ran out. Rather than devaluing the rupee to properly align the prices of domestic and foreign goods, the then government resorted to what is known as foreign exchange budgeting. Beginning with the second half of 1958, every six months the finance ministry began preparing a detailed budget of how the expected foreign exchange revenues over the following six months would be allocated across different ministries. That process multiplied the complexity and cost of investment licensing: No licence for investment in a project could now be given unless the finance ministry allocated foreign exchange necessary to…

Read full article Economist Deena Khatkhate, who passed away at the age of 92 on September 15 in Bethesda, Maryland, in the US, was an unusual man. By his own description, he was a ‘gadfly’. Early in his youth, he joined the Communist Party of India (CPI), but quickly discovered its internal contradictions and exited it before finishing college. As he grew older, his disillusionment with State control of the economy and his conviction for promarket reforms grew.Between Amartya Sen and Jagdish Bhagwati, he saw his thinking aligned with that of the latter. Oddly, however, it was Bhagwati who first discovered Deena as an author. As Bhagwati puts it, when doing his bachelor’s degree in Bombay, he greatly “profited” from Deena’s writings. The two economists became good friends while still in Bombay, and maintained close contact after they moved to two different cities in the US. Phone calls between them grew particularly frequent after the passing away of two of Deena’s dearest friends, V V Bhatt and Anand Chandavarkar. Both had been his colleagues first at the Reserve Bank of…