In The Media ⁽⁴⁰⁰⁾

Read full article Abstract: In the immediate post-Second World War era, following the then consensus view, nearly all emerging independent countries chose the path of import substitution to achieve industrialisation. But by early to mid-1960s Singapore, Taiwan and South Korea had broken away from this consensus and switched to export-oriented strategies. They soon achieved growth rates of 8-10% for the following two to three decades. India chose to stay course, deepening import substitution yet further. Our imports as a proportion of the gross domestic product (GDP) dropped to just 4% in 1969-70 from the peak of 10% in 1957-58. By mid-1960s we had banned consumer goods imports, which took away the pressure on domestic producers to supply high quality products. The “domestic availability” condition additionally denied our producers access to world class raw materials and machinery whenever equivalent domestic products, no matter how poor in quality, were available. Quality of our products plummeted and they failed to compete in the global marketplace. Poor performance of exports in turn created foreign exchange shortages, which led to yet greater tightening of import…

Most claims against it are untenable; note ban is more than a one-time step jump Read full article Abstract: Last week has seen a contentious debate on demonetisation replay itself. Predictably, critics have gone on to make several untenable claims. The present article challenges three of them. Claim 1: With nearly all of the high-denomination notes returned to the banking system, the primary objective of demonetisation — extinguishing unaccounted cash — has been wholly defeated. This claim is false on two counts. First, the primary objective of demonetisation was combating corruption, not extinguishing unaccounted cash. 

Read full article Abstract: There is general agreement that tepid growth in bank credit has been a major obstacle to launching the economy into a 8% plus growth trajectory. Bringing credit growth back on track in turn requires restoration of the health of Public Sector Banks (PSBs). Before I turn to the issue of how we might restore the health of PSBs, let us get the facts on the slowdown in credit growth right. Today, it is universally believed that the annual growth of credit advanced by the Scheduled Commercial Banks (SCBs) in 2016-17 fell to 5.1%, the lowest in six decades. This is the figure in a widely quoted April 2017 PTI story. The latest data in the Reserve Bank of India (RBI) Handbook on Statistics show, however, that SCB credit has actually grown 9% in 2016-17. This is far from the lowest in the past six decades. For example, at 5.7%, credit growth in 1993-94 was more than 3 percentage points lower. It deserves noting that the 9% figure represents continuity rather than a sharp break from the…

Read full article October 23, 2017 The Times of India Republished on Economic Times There is general agreement that tepid growth in bank credit has been a major obstacle to launching the economy into a 8% plus growth trajectory. Bringing credit growth back on track in turn requires restoration of the health of Public Sector Banks (PSBs). Before I turn to the issue of how we might restore the health of PSBs, let us get the facts on the slowdown in credit growth right. Today, it is universally believed that the annual growth of credit advanced by the Scheduled Commercial Banks (SCBs) in 2016-17 fell to 5.1%, the lowest in six decades. This is the figure in a widely quoted April 2017 PTI story. The latest data in the Reserve Bank of India (RBI) Handbook on Statistics show, however, that SCB credit has actually grown 9% in 2016-17. This is far from the lowest in the past six decades. For example, at 5.7%, credit growth in 1993-94 was more than 3 percentage points lower. It deserves noting that the 9%…

October 8, 2017 The Economic Times Read full article Two contrasting episodes from recent economic history offer useful background against which to think about the appropriate policy response to the recent decline in the growth rate. The first relates to the NDA government, which first came to power in March 1998, and the second to the UPA government, which assumed office in May 2004. In my earlier writings, I have systematically documented the wide-ranging reforms that the government of Prime Minister Atal Bihari Vajpayee introduced between March 1998 and May 2004. During this government’s first two years, the real GDP at market prices grew at the average annual rate of 7.5%. But in the subsequent three years, the growth rate successively fell to 3.8%, 4.8% and 3.8%. In nine of the 12 quarters during these three years, growth fell below 5.5%, and in one quarter to just 1.1%. Right-Fisted Fisc Such slow growth would unnerve any government today. Yet, putting faith in its reforms, the Vajpayee government stayed course without succumbing to fiscal stimulus of any sort. On the contrary,…