In The Media ⁽⁴⁰⁰⁾

Fiscal Responsibility and Budget Management (FRBM) Act, 2003 requires that the revenue deficit be eliminated entirely and fiscal deficit be reduced to 3% of the GDP by 2008-09. The Act also requires that each year the revenue deficit be reduced by 0.5% of the GDP and fiscal deficit by 0.3% of the GDP until the final 2008-09 target is reached. How can this be achieved? The recent report of the Kelkar taskforce offers a roadmap. Dr Vijay Kelkar, one of India’s finest economists to serve the government of India, completes his two-year term as adviser to the finance minister this month. During this brief stint, he has provided the intellectual leadership that is rare in policy making. Few observers can forget the intense debate he launched through the comprehensive draft reports on direct and indirect tax reforms soon after he took his position at the invitation of the former finance minister Jaswant Singh. That debate set a new standard for giving the common man a voice in the policymaking. Having closely observed the deployment of the Gramm-Rudman-Hollings Act to bridge…

Read full article Abstract: In May 2004, when India unexpectedly voted into power the Congress and its allies (later renamed the United Progressive Alliance) and Manmohan Singh became prime minister, it was a dream come true for proponents of economic reform. As finance minister in 1991, Dr. Singh -- who meets President Bush today -- had steered his country out of a major macroeconomic crisis. He went on to liberate India from its "license raj," with its myriad of controls on imports and investment. The measures he put in place in his five-year term delivered a handsome annual GDP growth of 7.5% from 1994-97 and 6% during the 1990s. Four months into UPA rule, prospects are less rosy. GDP growth, which had touched 8% in 2003-04, is set to decline to 6% this year. Inflation, at 3.4% in 2002-03 and 5.4% in 2003-04, has edged up to 7.5%. Until April, everyone was betting on the appreciation of the rupee. But it has depreciated more than 6% against the dollar since then, despite the sale of several billion dollars by the…

Might the new wave of outsourcing to poor countries be different from trade in manufacturing, and make rich countries poorer? A paper by Jagdish Bhagwati, author of a recent book on globalisation, Arvind Panagariya, his colleague at Columbia University, and T.N. Srinivasan of Yale provides more help. They show, also using classical trade models, that outsourcing is no different in economic terms from the trade that has been going on since Ricardo's time. The standard results still hold. Read full article Abstract: WHEN David Ricardo, a 19th-century economist, criticised England's protectionist corn laws, he based his argument on the notion of “comparative costs”, these days called comparative advantage. The idea, in brief, is that all countries can raise their living standards through specialisation and trade. Even if one country can make everything more cheaply than every other it still gains from focusing on the goods in which its relative advantage is greatest—ie, in which it has a comparative advantage—and importing the rest. But trade in Mr Ricardo's day involved grain sent by ship from Germany, not computer code sent by…

The Union commerce and industry minister, Mr Kamal Nath, scored an important victory in Geneva last month. must now build on his success by further reforming India’s trade regime. The National Foreign Trade Policy, due on 31 August, offers an excellent opportunity to accomplish this objective. The policy must pay particular attention to two issues — export subsidies and anti-dumping.The Union commerce and industry minister, Mr Kamal Nath, scored an important victory in Geneva last month. To his credit, while he engaged in tough talk and successfully extracted the concessions he sought, he did not shy away from making the necessary concessions of his own. Abandoning India’s original, self-defeating stance that it will not accept any reduction in its trade barriers in agriculture, he agreed to place agricultural barriers on the negotiating table in return for similar offers by his counterparts. That led to a happy ending for all — except a handful of obstructionist NGOs which tried until the end of the negotiations to provoke developing countries into blocking the deal. Kamal Nath must now build on his success…

William R. Cline's reaction (Letters, August 9) to my exposure of the fallacy that the removal of the rich country subsidies and protection in agriculture is desirable because it will do most good to the least developed countries (LDCs) is to deny the fallacy by assertion. (Letter, FT August 12, 2004) Read full article Sir, William R. Cline's reaction (Letters, August 9) to my exposure of the fallacy that the removal of the rich country subsidies and protection in agriculture is desirable because it will do most good to the least developed countries (LDCs) is to deny the fallacy by assertion. Mr Cline concedes that two-thirds of the LDC poor reside in the countries that are net food importers. The majority of these countries will surely be hurt by higher food prices. I see nothing in his "model" that shows anything otherwise except by untested assumptions. A bigger, and largely unnoticed, problem he does not address is that even the LDC exporters stand to lose from the liberalisation. They currently enjoy duty- and quota-free access to the European Union internal…