In The Media ⁽⁴⁰⁰⁾

Read full article (on Brookings) Abstract: With the highly proficient National Security Guard commandos having killed the last of the terrorists holed up in the Taj Hotel in Mumbai, the question on everyone’s mind is what effect the tragedy will have on the economy. Despite some clear differences between the Mumbai tragedy and the 9/11 New York calamity, the latter provides a good starting point for answering this question. The effects of the 9/11 events, now extensively studied and analyzed, may be considered at the local level on New York City and at the national level on the United States. In the immediate aftermath of the 9/11 terrorist attacks, many analysts predicted significant permanent damage to the economy of the New York City. There is now virtual consensus, however, that the effects were smaller than initially predicted and were short-lived. A July 12, 2006, report by the Federal Reserve Bank of New York concluded that the economic effects of the terrorist attacks were sharp but short-lived and had largely disappeared by the end of 2002. According to the Federal Reserve…

While India must eventually liberalise its financial sector, we must err on the side of caution.Read full articleWhile India must eventually liberalise its financial sector, we must err on the side of caution. Main Street reforms promise much better prospects of multiplying well-paid jobs for India's poor. The current economic crisis, which originated in the financial sector of the United States, is being transmitted to the countries around the world through three principal channels. First, it has directly impacted the balance sheets of financial institutions that invested in the mortgage-backed securities and their derivatives, which turned toxic following large-scale defaults in the US housing market. In Asia, Korean banks suffered the most, requiring a $130 billion bailout package. Second, the crisis has created a liquidity crunch. The US firms seeking liquid resources massively withdrew their investments in stocks and bonds in other countries. The resulting decline in the prices of bonds and stocks also led local investors to pull back from the market. Both factors contributed to the tightening of credit. Reinforcing these factors was the return of the local…

The success of reforms in stimulating growth has inclined the audience more favourably towards entrepreneurs and corporations.Read full articleThough the film industry rarely comes to mind when we think of reforms, its transformation in the post-reform era has been remarkable. Total revenues of the industry have grown from Rs 60 billion in 2004 to Rs 96 billion in 2007. This represents an annual growth of 17% in nominal terms. Today, India produces more films than either the US or EU. While Bollywood accounts for the bulk of the revenues, surprisingly, it produces only one-fifth of India's total. Tollywood (Telugu film industry) produces more films than Bollywood.To be sure, pre-reform policy regime proved lesser of a handicap for the film industry than for manufacturing. Being generally outside the ambit of the licence raj, the former could respond more freely to market forces than such sectors as automobile, cement and steel. Nevertheless, progress was hampered by super-high entertainment taxes that limited the growth of the market; import controls that denied the industry access to the state-of-the-art equipment; foreign exchange controls that limited…

Read full article Abstract: After nearly 30 years, the Swedish Academy has returned to international trade awarding the Nobel Prize to Princeton economist Paul Krugman. Earlier, in 1977, the award had gone to two giants, Bertil Ohlin and James Meade, whose brilliant work formed the foundations of trade theory as it was taught when I came to Princeton to do my Ph.D. in 1974. Krugman, no less a giant, revolutionized the field. Until the end of the 1970s, the Heckscher-Ohlin theory for which Bertil Ohlin won the prize--Eli Heckscher died before the Nobel Prize in economics was instituted--dominated the field. This theory explained well why labor-abundant countries such as South Korea and Taiwan would export labor-intensive products such apparel, toys and footwear and capital-abundant countries such as the United States would export machinery and aircraft.

Arvind Panagariya: Although land acquisition for the Singur plant by West Bengal was well within the law, its approach was heavy handed and lacked transparency. Read full article Abstract: A set of weather events that individually give rise to only a mild to moderate storm turn deadly when they occur simultaneously. The result is what meteorologists call a "perfect" storm. The Singur tragedy is such a storm caused by confluence of an aggressive corporation, a zealous government and an opportunist politician. Until recently, it was a mystery why Tata Motors had chosen West Bengal, a state with a Marxist government, as the site for manufacturing Nano. Partial revelation of a tripartite agreement, signed by Tata Motors, West Bengal government and West Bengal Industrial Development Corporation (WBIDC) in March 2007, has now provided the explanation. Seeking to maximise profits, Tata Motors went on to pit the states of West Bengal, Uttarakhand and Himachal Pradesh against one another when choosing the production site for Nano. The ensuing competition produced the most lucrative deal for the corporation. The West Bengal government not only agreed to award…