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.
More...
Wednesday, June 22, 2011
Monday, June 6, 2011
Lady Gaga and Globalization
In the long-standing feverish celebrity culture of the US, pop singer Lady Gaga has scaled new heights. She recently displaced Oprah Winfrey at the top of Forbes magazine’s Celebrity 100 list, and Amazon.com used her latest album as a 99 cent promotion,http://www.blogger.com/img/blank.gif designed to challenge Apple’s dominant iTunes and its looming iCloud music services. The Amazon promotion garnered a Wall Street Journal headline, “Lady Gaga Wars.”
Now Lady Gaga plans to extend her fame to South Asia. In an interview with the WallStreetJournal.com, she said, “The reason I’m going to India now is because I can. I didn’t have the money or the resources before to travel and bring all of my things with me and reach an entire new territory of fans.” The entry strategy includes several Bollywood-style remixes of her songs, and employment of a firm that specialises in producing and distributing entertainment content aimed at South Asians all over the world.
More...
Now Lady Gaga plans to extend her fame to South Asia. In an interview with the WallStreetJournal.com, she said, “The reason I’m going to India now is because I can. I didn’t have the money or the resources before to travel and bring all of my things with me and reach an entire new territory of fans.” The entry strategy includes several Bollywood-style remixes of her songs, and employment of a firm that specialises in producing and distributing entertainment content aimed at South Asians all over the world.
More...
Sunday, May 29, 2011
The Future of the IMF
The arrest and resignation of Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), has captured headlines for days. One of the http://www.blogger.com/img/blank.gifhttp://www.blogger.com/img/blank.gifconsequences of this sudden turn of events has been the clear surfacing of several candidates from developing nations, as well as strong claims from some emerging economy policymakers that Europe should cede its traditional right to the position. An English bookmaker made Turkey’s Kemal Dervis the favourite in early betting, with India’s Montek Ahluwalia not far behind in the odds.
Read More...
Read More...
Sunday, May 22, 2011
What Do Investors Know?
Globalization has flattened the world in some ways, but not in others. Many years ago, economists Martin Feldstein and Charles Horioka observed that national savings and investment rates are highly correlated, indicating that investors tended to keep their money at home, rather than diversify globally, even without restrictions on capital flows. Subsequently, other economists documented this ‘home bias’ for portfolios of shares—investors tilt toward holding shares of their own country’s companies.
Read more...
Read more...
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.
More...
More...
Tuesday, April 19, 2011
A Proposal for Conquering Malnutrition in India
India continues to struggle with how to achieve inclusive growth. A basic problem is that a large portion of the population does not possess the capabilities to participate productively in a modern market economy. A natural policy response is for the government to intervene directly: provide food, jobs, education and credit. India’s problem is that the government’s interventions are often ineffective. It is natural for a developing country government to lack capacity—India’s governmental capacity is actually quite good for its level of development. Making good policy choices is often not about capacity, however, it is about clarity of thought and recognition of realities. The ‘right to food’ campaign needs both.
More...
More...
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.
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...
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...
Subscribe to:
Posts (Atom)