The 10% growth target for India has had a magical allure. It is hard to say if anyone first held it out publicly as something to strive for realistically, but I do remember Vijay Kelkar as being an early believer. The current Prime Minister has also mentioned this target several times. Yet that double-digit growth rate has remained stubbornly out of reach as a short-term forecast of actual growth. Indeed, it seems that when the Indian economy nears 10% growth, inflation rears its ugly head, and fears of overheating spread. A few years ago, estimates of India’s medium-term potential growth rate tended to be in the 8-9% range. This may be about to change.
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Showing posts with label growth. Show all posts
Showing posts with label growth. Show all posts
Wednesday, June 22, 2011
Tuesday, May 10, 2011
The G20 Makes Progress
The recent G20 meetings in February and April have showed that the G20 works. The achievements are not dramatic, but the forward progress is visible, if at a measured pace. Last year, the US had been pressing for rebalancing—basically asking mostly China, but also other current account surplus countries, to adjust their macroeconomic policies to increase their domestic demands and reduce their relative export focus. Those countries argued that the US’s own macroeconomic policies—fiscal and monetary—needed to adjust drastically. Rather than drifting into confrontation and stalemate, this issue has been tackled relatively effectively by the G20.
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Sunday, March 27, 2011
Thoughts on Innovation, Entrepreneurship and Growth
These four pieces have a common theme of how to encourage innovation and entrepreneurship in India
India's Missing Growth Driver
India’s Union Budget has been presented, the Economic Survey has been published and attention has returned to day-to-day governance and politics as usual. Stories about big business, big sums of money and large-scale corruption are the ones that grab headlines. Ultimately, though, key policies that will shape India’s future may be suffering from neglect. Sustained inclusive growth requires innovation and job creation across a broad cross-section of the economy. This includes labour-intensive manufacturing, but, more generally, an industrial dynamism that extends beyond large incumbent firms, foreign entrants, or the relatively few recent domestic success stories.
A few years ago, prominent economist Anne Krueger labelled India’s problem that of a “missing middle” in its distribution of firms—a gap between small firms in the unorganised sector, and the large firms that grab headlines in billionaires’ lists and mega-mergers and acquisitions.
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India in 2011: What's Next?
What’s in store for India in the new year? The short-term economic outlook is good. Growth of 9% seems to be a reasonable forecast. Looking ahead, growth rates in this range seem to be sustainable for awhile, based on the assumption that investment stays at about 35% of GDP, and that the efficiency of this investment doesn’t decline compared to recent years. In one way, this is a remarkable achievement. The government has struggled to implement new structural reforms, and to do its core tasks more efficiently; yet the economy remains robust. Perhaps this is a tribute to what stability and reasonably adequate governance can achieve, when the private sector is in a position to take advantage of such an environment. The accelerating recovery in the US will presumably help India’s growth rate as well.
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Innovation and Taxes
India is continuing with major reforms of its tax system. These reforms began with liberalisation, and included cutting tax rates and rationalising enforcement and administration. Tax reform has been an important contributor to the country’s improved economic performance. The latest effort on indirect taxes is the move towards a unified national goods and services tax (GST). On the direct tax front, the new direct taxes code (DTC) Bill has just been tabled in Parliament.
A major guiding principle for tax reform is the goal of reducing distortions in economic activity that taxes can create. Tax rates that are too high, or taxes that apply to narrow groups, are more distortionary than lower rates and broader tax bases. Reforms of indirect and direct taxes are meant to cut down on distortions and improve economic efficiency. Lower rates applied more broadly and evenly, without overlapping taxes or exemptions, are part of the GST and DTC. Another principle, aligned with the first, is simplicity. Simplicity makes tax administration easier and more transparent. The GST and DTC are both simpler than their predecessors.
More...
Schumpeter and Three Idiots
Economic headlines in India focus on macroeconomic management. Soaring inflation, a burgeoning fiscal deficit or gyrating exchange rates all affect the economy’s health, but prudent macroeconomic policies only go so far. Long-run growth depends on factors like investment, innovation and trade (a different expansion of the initials IIT!), which do not receive as much attention. Investment is perhaps the most basic driver of growth, since capital accumulation raises labour productivity and per capita output. High rates of investment helped East Asia grow at rates never seen before. India, too, has seen higher growth associated with higher rates of investment.
International trade in goods and services has also helped India grow faster. According to economic theory, liberalising trade in goods should have just a one-time effect on output, rather than a permanent effect on growth, but the one-time effect could be spread over decades. Openness to trade also brings new capital and ideas along with products and services, and these can give boost to long-run growth.
More...
India's Missing Growth Driver
India’s Union Budget has been presented, the Economic Survey has been published and attention has returned to day-to-day governance and politics as usual. Stories about big business, big sums of money and large-scale corruption are the ones that grab headlines. Ultimately, though, key policies that will shape India’s future may be suffering from neglect. Sustained inclusive growth requires innovation and job creation across a broad cross-section of the economy. This includes labour-intensive manufacturing, but, more generally, an industrial dynamism that extends beyond large incumbent firms, foreign entrants, or the relatively few recent domestic success stories.
A few years ago, prominent economist Anne Krueger labelled India’s problem that of a “missing middle” in its distribution of firms—a gap between small firms in the unorganised sector, and the large firms that grab headlines in billionaires’ lists and mega-mergers and acquisitions.
More...
India in 2011: What's Next?
What’s in store for India in the new year? The short-term economic outlook is good. Growth of 9% seems to be a reasonable forecast. Looking ahead, growth rates in this range seem to be sustainable for awhile, based on the assumption that investment stays at about 35% of GDP, and that the efficiency of this investment doesn’t decline compared to recent years. In one way, this is a remarkable achievement. The government has struggled to implement new structural reforms, and to do its core tasks more efficiently; yet the economy remains robust. Perhaps this is a tribute to what stability and reasonably adequate governance can achieve, when the private sector is in a position to take advantage of such an environment. The accelerating recovery in the US will presumably help India’s growth rate as well.
More...
Innovation and Taxes
India is continuing with major reforms of its tax system. These reforms began with liberalisation, and included cutting tax rates and rationalising enforcement and administration. Tax reform has been an important contributor to the country’s improved economic performance. The latest effort on indirect taxes is the move towards a unified national goods and services tax (GST). On the direct tax front, the new direct taxes code (DTC) Bill has just been tabled in Parliament.
A major guiding principle for tax reform is the goal of reducing distortions in economic activity that taxes can create. Tax rates that are too high, or taxes that apply to narrow groups, are more distortionary than lower rates and broader tax bases. Reforms of indirect and direct taxes are meant to cut down on distortions and improve economic efficiency. Lower rates applied more broadly and evenly, without overlapping taxes or exemptions, are part of the GST and DTC. Another principle, aligned with the first, is simplicity. Simplicity makes tax administration easier and more transparent. The GST and DTC are both simpler than their predecessors.
More...
Schumpeter and Three Idiots
Economic headlines in India focus on macroeconomic management. Soaring inflation, a burgeoning fiscal deficit or gyrating exchange rates all affect the economy’s health, but prudent macroeconomic policies only go so far. Long-run growth depends on factors like investment, innovation and trade (a different expansion of the initials IIT!), which do not receive as much attention. Investment is perhaps the most basic driver of growth, since capital accumulation raises labour productivity and per capita output. High rates of investment helped East Asia grow at rates never seen before. India, too, has seen higher growth associated with higher rates of investment.
International trade in goods and services has also helped India grow faster. According to economic theory, liberalising trade in goods should have just a one-time effect on output, rather than a permanent effect on growth, but the one-time effect could be spread over decades. Openness to trade also brings new capital and ideas along with products and services, and these can give boost to long-run growth.
More...
Wednesday, March 23, 2011
The Great Indian Growth Debate
Here are two columns about the Sen-Bhagwati contretemps on India's growth
"It's Growth, Stupid -- Or Is Growth Stupid?"
The debate between two of India’s greatest economists, Jagdish Bhagwati and Amartya Sen, is important for India’s policymakers. Are growth targets diverting policy attention from other important development goals? Chief Economic Advisor Kaushik Basu has said the differences are less substantive than they are made out to be, but what is the common ground? Here is my take on the great growth debate.
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Fighting Malnutrition in India
Growth is good. So are health and education. Malnutrition is bad. As I noted in my last column, everyone, including those involved in India’s growth debate, agrees on these things. But differences emerge in recommendations for how to improve India’s human development status. Malnutrition is a good example. One view is that focusing on growth alone diverts attention from tackling problems like malnutrition. Another view is that accelerating growth is crucial to generate the resources for addressing such problems.
More...
Here are two columns about the Sen-Bhagwati contretemps on India's growth
"It's Growth, Stupid -- Or Is Growth Stupid?"
The debate between two of India’s greatest economists, Jagdish Bhagwati and Amartya Sen, is important for India’s policymakers. Are growth targets diverting policy attention from other important development goals? Chief Economic Advisor Kaushik Basu has said the differences are less substantive than they are made out to be, but what is the common ground? Here is my take on the great growth debate.
More...
Fighting Malnutrition in India
Growth is good. So are health and education. Malnutrition is bad. As I noted in my last column, everyone, including those involved in India’s growth debate, agrees on these things. But differences emerge in recommendations for how to improve India’s human development status. Malnutrition is a good example. One view is that focusing on growth alone diverts attention from tackling problems like malnutrition. Another view is that accelerating growth is crucial to generate the resources for addressing such problems.
More...
Tuesday, September 29, 2009
How fast are India's states growing, and why?
Three years ago I did the following calculations based on per capita state domestic products:
| State | 1993-94 | 2003-04 | Growth (percent) | Growth rank |
| | 7416 | 11756 | 58.52 | 5 |
| | 3037 | 3557 | 17.12 | 18 |
| Jharkhand | 5897 | 7732 | 31.12 | 13 |
| | 16558 | 30506 | 84.24 | 1 |
| | 9796 | 16780 | 71.29 | 3 |
| Haryana | 11079 | 15752 | 42.18 | 9 |
| Karnataka | 7838 | 13141 | 67.66 | 4 |
| Kerala | 7983 | 12328 | 54.43 | 7 |
| | 6584 | 8284 | 25.82 | 16 |
| Chhattisgarh | 6539 | 8383 | 28.20 | 14 |
| | 12183 | 16479 | 35.26 | 11 |
| Orissa | 4896 | 6487 | 32.50 | 12 |
| | 12710 | 16119 | 26.82 | 15 |
| Rajasthan | 6182 | 9685 | 56.66 | 6 |
| Tamil Nadu | 8955 | 12976 | 44.90 | 8 |
| | 5066 | 5975 | 17.94 | 17 |
| Uttaranchal | 6896 | 9471 | 37.34 | 10 |
| | 6756 | 11612 | 71.88 | 2 |
You can see that over the decade used in the table, the three slowest growing states were poor ones: Madhya Pradesh, Uttar Pradesh, and
There is newer data now, and here is a calculation for a later seven year period. It leaves out Uttarakhand (Uttaranchal) and
| | 99-00 SDP PC | 06-07 SDP PC | Growth | Rank |
| Andhra Pradesh | 15507 | 22835 | 58.56 | 6 |
| | 5786 | 8167 | 62.43 | 3 |
| Chhattisgarh | 11629 | 15660 | 51.74 | 8 |
| | 18864 | 27027 | 62.02 | 4 |
| Haryana | 23229 | 37314 | 85.75 | 1 |
| Jharkhand | 11549 | 14252 | 39.40 | 13 |
| Karnataka | 17502 | 22952 | 43.62 | 11 |
| Kerala | 19461 | 30044 | 63.67 | 2 |
| Madhya Pradesh | 12384 | 12881 | 18.95 | 16 |
| | 23011 | 30982 | 50.83 | 9 |
| Orissa | 10567 | 15528 | 59.02 | 5 |
| | 25631 | 30041 | 32.58 | 15 |
| Rajasthan | 13619 | 16460 | 39.69 | 12 |
| Tamil Nadu | 19432 | 28320 | 54.81 | 7 |
| Uttar Pradesh | 9749 | 11334 | 33.95 | 14 |
| | 15888 | 21753 | 48.90 | 10 |
Haryana and Kerala do a lot better in this later snapshot. Karnataka does relatively worse.
All kinds of things can affect growth rates, but my guess is that governance matters a lot.
Monday, September 28, 2009
Views from the Left
On NPR today I happened to hear both Arundhati Roy and Joseph Stiglitz (in separate interviews). I've had the impression of Roy as somewhat overwrought in her criticism of globalization and capitalism, and some of her language today was reminiscent of that image. But she also spoke eloquently about human rights, and the need to protect the poor in India. It was clear that she really looks at what is going on and feels for those who are downtrodden. As a human rights activist, she makes a lot of sense, probably not so much as a commentator on economics.
Not that economists always agree. Joe Stiglitz politely criticized US government policy for putting lots of money into the banking system, but not doing enough to boost aggregate demand. I seem to remember a dig at Fed chairman Bernanke. Stiglitz argued that growth was not going to be strong enough to create a significant number of jobs. It makes sense to want to get things moving fast enough so that jobs are created and there is some momentum generated in the economy. I wonder if the federal government has room to spend more, given its large deficit. The high debt overhang means a slow recovery as adjustments are made on that front, and boosting aggregate demand may not do much either. I have a sense that there is also still an excess supply in real estate, at current prices. Seems that the US is in for a painful adjustment period.
Not that economists always agree. Joe Stiglitz politely criticized US government policy for putting lots of money into the banking system, but not doing enough to boost aggregate demand. I seem to remember a dig at Fed chairman Bernanke. Stiglitz argued that growth was not going to be strong enough to create a significant number of jobs. It makes sense to want to get things moving fast enough so that jobs are created and there is some momentum generated in the economy. I wonder if the federal government has room to spend more, given its large deficit. The high debt overhang means a slow recovery as adjustments are made on that front, and boosting aggregate demand may not do much either. I have a sense that there is also still an excess supply in real estate, at current prices. Seems that the US is in for a painful adjustment period.
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