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2022 | Book

Perspectives on Inclusive Policies for Development in India

In Honour of Prof. R. Radhakrishna

Editors: Prof. Saiyed Raza Hashim, Prof. Rahul Mukherji, Dr. Brajaraja Mishra

Publisher: Springer Nature Singapore

Book Series : India Studies in Business and Economics

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About this book

This book presents perspectives by eminent economists, social scientists and policy makers, exploring in depth the post-reform developments in India, including issues pertaining to growth and equity, issues which have been at the core of life-time work of Prof. R. Radhakrishna. The book brings out how some public policy instruments created to promote growth have turned out to be regressive, promoting inequalities and creating a highly asymmetric federalism in India. It examines the efficacy of fiscal and monetary reforms and also emphasises the need for strengthening the institutions of governance, particularly judiciary and police, in order to boost investors’ confidence. It presents exercises in econometric modelling for explaining factors in growth and vetting policies, and explores the issue of governance and institutions.

The book provides insights into the working of an emerging economy and a large democracy which has to strive for public acceptability of the tensions of its negotiations between equity and growth. With its depth of academic excellence and breadth of topics covered, it is a ‘must read’ for researchers, policy makers, industry watchers, think tanks, and NGOs.

Table of Contents

Frontmatter
Introduction: Inclusiveness in Development Strategies and Policies
Abstract
I am privileged to be associated with this book brought out in honour of Professor R. Radhakrishna. It is a happy occasion to recall my long association with him going back well over half a century since we were together at Gokhale Institute of Politics and Economies working on our doctoral theses under the inspiring guidance of Professor P. N. Mathur. Radhakrishna was a shining star of the weekly workshops which Professor Mathur used to conduct. Simple, courteous, kind and with a great sense of benign humour, Radhakrishna was enviably popular among teachers and students, all. He has preserved and enriched those qualities through times.
Saiyed Raza Hashim

Instrument of Public Policy and Reforms

Frontmatter
Interstate Inequalities—Scope and Limits of Public Policy
Abstract
Per capita income gaps have been widening across the States of India. Capacity to raise funds and the mechanisms that enable the States to raise funds for development accentuate these gaps. Gaps in development widen with the State’s ability to bargain for funds and then use the funds efficiently. Unequal access to funds is also a result of low absorbing capacity of the States. States deserve certain basic public services, irrespective of their per capita income generation. Finance commissions have played some role in equalising the access to finances across the States based on the needs. The other institutions such as the Planning Commission have, in the past, allotted more funds to richer States than the poorer ones. Subsequently, National Institution for Transforming India (NITI Ayog) allocated more funds to the federal government than the regional governments. Matching funds by the State is mandatory to access funding for central government schemes, putting poorer States at a disadvantage. Market borrowing from both domestic and external sources has been the source of finance for many State governments in recent years. After imposing the gaps on domestic borrowing at 3% of the gross State domestic product to inculcate financial discipline, the richer States could borrow more. External borrowing mostly went to the southern States. Federal government tax concessions, food and fuel subsidies have been higher in the richer States. Credit flows from the nationalised banks also favoured the richer States.  In brief, empirical evidence shows that the institutions and instruments of public policy are not structurally and operationally oriented to reducing inequalities between States.
Y. V. Reddy
Fiscal Dominance of Monetary Policy: Global and Indian Experience
Abstract
Fiscal dominance refers to a phenomenon whereby the government’s fiscal profligacy is accommodated by the central bank’s monetary policy thereby compromising its objectives of maintaining price and financial stability. Drawing from historical experience, countries have instituted several measures—most notably, fiscal rules to keep government borrowing within limits and inflation targeting to clearly define the mandate of the central bank—in order to restrain fiscal dominance. The interplay between monetary and fiscal policies has played out in the real world several times over the last decade, most recently in managing the economic fallout of the COVID-19 pandemic that has engulfed both rich and poor countries alike. Confronted with secular stagnation, the issue of fiscal dominance has become less potent for rich county central banks as their challenge has turned from restraining inflation to igniting inflation. The situation with emerging market central banks is however different. They still have to contend with inflation, rather than disinflation, pressures. They also have to contend with fragile and immature governance institutions. The case for combating fiscal dominance of monetary policy in emerging markets therefore remains strong. That case is possibly the strongest for India.
Duvvuri Subbarao
Post-pandemic Revival Strategy for India
Abstract
The paper analyses the impact of COVID-19 on the economy and the underlines the need to galvanise reforms to take it back to the high growth environment. The economy was slowing down even before the pandemic due to a number of structural factors. The pandemic made the matters worse. Besides devastating consequences on the lives and livelihoods of the people, the pandemic led to serious disruption in economic activities and sharp contraction in income levels. While the first wave of the pandemic created serious disruptions, even as the economy started recovering, the second wave piled on the misery of the people and their economic fortunes. The paper traces the economic and fiscal consequences of the pandemic, underlines the structural problems and identifies the reform areas in the post pandemic economic policy frame.
M. Govinda Rao
Law and Economics of Pure Economic Loss in Tort
Abstract
The law of torts excludes or restricts compensation for pure economic losses in many legal orders even though differences exist across countries. By definition, pure economic losses are not associated with the infringement of an absolute right, which its holder can defend against everyone, like life, bodily integrity or property. The economic underpinning of the exclusion from damage compensation is that a tortious act leading to pure economic loss often also causes gains for others. Therefore, the damages of the victim are higher than the social damage. Damage compensation will then—from a societal point of view—lead to overcompensation and possibly over-deterrence. The paper shows that this argument is sometimes correct and sometimes misleading. Many pure economic losses deserve compensation under the economic rationale as recent research has shown. Legal orders should therefore define subcategories of pure economic losses, which deserve or do not deserve compensation. Some catastrophic accidents as the Alaska oil spill and the “deep water horizon” catastrophe in the Gulf of Mexico revealed that most of the damages were pure economic losses like income loss of fishermen and in the tourist industry, which require compensation for providing sufficient incentives to tortfeasors.
Hans-Bernd Schäfer

Econometric Modelling

Frontmatter
Macroeconomic Foundation of Functioning of the IMF: An Evolutionary Journey
Abstract
This paper narrates the chronicle of the evolutionary journey of theoretical foundation of functioning of the International Monetary Fund (IMF) and tries to locate various twists and turns. The initial basis of the IMF-supported adjustment programme came from an application of Polak, IMF Staff Papers 6:1–50, (1957) model that attempted an integration of monetary, income and balance of payments analyses. Subsequently, this got transformed into “financial programming models”, which got refined through IMF’s experience of lending to countries. Later during the mid-1980s, the IMF developed a modern dynamic multi-country macromodel of the world economy, called the MULTIMOD. This model was designed to study the transmission of shocks across countries as well as the short-run and medium-run consequences of alternative monetary and fiscal policies. During the late 1990s, the IMF developed a multi-country dynamic stochastic general equilibrium (DSGE) model called Global Economy Model (GEM). In recent past, IMF’s theoretical foundation came under heavy attack during the global financial crisis of 2008–2009. In particular, disconnect between macro and financial sector in IMF’s operational models has been held responsible as one of key causes behind IMF’s inability to give any early warning about built-up of risks in the US financial sector. More recently, while various refinements have been made to incorporate financial sector in IMF’s macromodel in DSGE tradition, the quest for such models is still on. In the ultimate analysis, the IMF is a quota-based organization. Its functioning and research output could reflect this skewed governance structure. Till the time, this gets addressed in a satisfactory way; the macroeconomic foundation of IMF functioning will be a hostage of the interests of principal shareholders of the IMF.
Dilip Nachane, Partha Ray
Assessing Policy Initiatives to Accelerate Economic Growth: An Illustration Using a Macroeconometric Model for India
Abstract
This paper attempts to assess the effects of devaluation, demonetization and demand management through public investment (3Ds) on Indian economy using a macroeconometric model. The model is estimated using annual time series data for 1985–86 to 2009–10 at 2004–05 prices. A 30% devaluation of India-US bilateral nominal exchange rate re-confirmed the inverse ‘J-curve’ hypothesis for India. Similarly, the demonetization scenario consisting of 5% reduction in reserve money, 50% increase in deposits with commercial banks and 30% increase in direct taxes seems to suggest 5.3% decline in nominal GDP, but 0.3% increase in real GDP in 1991–92. In a third scenario, Rs. 30,000 crore increase in real public investment in conjunction with devaluation, demonetization and reduction in corporate tax (3Ds) seems to suggest quite beneficial impacts in the Indian economy. Due to shock-nature of these policy measures, the dynamic effects are found to dampen and vanish over time, confirming the long-run dynamic stability of the model. Since the financial sector has strong linkages with real sector, the former also contributed to these observed effects. It may be mentioned that this study is not meant to predict growth scenario, but it is methodological in nature to assess a given policy option to improve growth acceleration in India. In all, this study suggests that it is possible to stimulate real economic growth to a desired level with appropriate monetary and fiscal initiatives.
K. N. Murty
Determinants of Economic Growth Across States in India
Abstract
Economic performance has been widely different across states in India. This paper attempts to examine some possible determinants of gross state domestic product (GSDP) growth across 17 major states in India during 2004–05 to 2016–17. A major handicap in this endeavour has been non-availability of private investment data at the state level to examine its influence on state economic growth. Nevertheless, the growth literature over the years has focused on several other variables such as infrastructure, social sector expenditure, urbanization, financial inclusion and state fiscal discipline for which state level data are available. We examine these possible determinants in this paper using a fixed effect panel regression model. In this context, a well-recognized point is that some of these variables such as social sector expenditure have a bidirectional relationship with economic growth in the sense that they influence growth as well as they are influenced by growth. A two stage least square approach using instrument variables has been used to treat the endogeneity problem. Second, an infrastructure index has been constructed at the state level using principal component analysis to combine several infrastructure related variables like power availability, gross irrigated area, telecom connection, road density and rail density. The results indicate that infrastructure development, social sector expenditure, urbanization and financial inclusion have positive and significant effects while state fiscal deficit has detrimental effect on GSDP and per capita GSDP across states.
Manoj Panda, Samraj Sahay
Progress in Applied Econometrics in India: A Selective Review
Abstract
During the past 25 years or so, econometrics has grown at a very rapid pace, and has come to play a major role in the development of the economics discipline. Palgrave's Handbook of Econometrics in two volumes: edited by Mills and patters on: volume I-Econometric Theory (2006) and Volume 2: Applied Econometrics (2009), each volume with 10 parts and 29 chapters bears testimony to the diversified growth of both econometric theory and applied econometrics. The symposium on Recent Ideas in Econometrics published in the Journal of Economic Perspectives, Spring 2017 issue covers 6 themes, one in Econometric Theory, 4 in Applied Econometrics, and one on undergraduate econometrics instruction. Applied Econometrics has received much more attention than Econometric Theory in the twenty-first century. During the past five decades, many eminent economists have won the Nobel Prize in Economics for their seminal contributions in Applied Econometrics, beginning with Frisch and Tinbergen in 1969. Several institutions in Higher Education and Research in India have contributed much to the development of econometrics in India. The Econometric Society of India (TIES) founded by Mahalanobis and C R Rao, five decades ago, and the Journal of Quantitative Economics (JQE) founded in 1983 deserve credit for the development of Applied Econometrics in India. This essay attempts a selective review of Econometric Practice in India in the twenty-first century in the different fields of microeconometrics and macroeconometrics. The increased availability of a variety of databases and sophisticated econometric software have greatly facilitated applied econometric research in the country. However, a large proportion of colleges in India lack instructional and research resources for Applied Econometrics.
K. L. Krishna

Governance and Institutions

Frontmatter
Governing India: What Do We Know and Need to Know?
Abstract
This paper presents a view regarding state capacity in India after discussing the extensive literature on clientelism. It proposes that state capacity in India has much to do with the way in which the central and sub-national states cogitate about policy goals and the means to achieve them. For example, is import substitution or export promotion the way to grow? Will growth trickle down to the poor or is non-market redistribution the way to alleviate poverty? These issues are debated between puzzling bureaucrats and powering politicians, and when they reach a tipping point, we see that the state finds capacity to deliver even in a liberal democracy like India. The paper proposes a tipping point model for understanding state capacity in the Indian liberal democracy. It suggests a way for liberal democracies to fight clientelism and develop the capacity to pursue their goals, even though these goals are often unrealized.
Rahul Mukherji
NITI Aayog—An Alternate Think Tank
Abstract
On 1 January 2015, the Cabinet passed a resolution to set up the National Institution for Transformation of India (NITI) Aayog. This brought to the end of the erstwhile Planning Commission, which had played an important role in the country’s economy for over six and a half decades from very low initial conditions to a high growth trajectory. This paper addresses the following issues relating to the NITI Aayog: What has motivated the new government to replace the Planning Commission with the NITI Aayog? What are the roles and functions assigned? What is its organizational design? How does its functional architecture look like? What are some of its major initiatives in the last four years? Was it inevitable to dissolve the Planning Commission and create a new institution to do what the NITI Aayog is doing? While concluding, it argues that a restructured and reoriented Planning Commission dispensing with its negatives features such as micro-management and excessive bureaucratization but retaining the positive ones in sync with the changed contexts could have done better than what NITI Aayog has been doing.
Atul Sarma
Indian Official Statistical System
Abstract
Institutional arrangements in the statistical system have been evolved, in accordance with the division of powers between the Centre and the States and further allocation of subjects to administrative departments. Interdependency is a norm and a requirement in such a system. There would be a natural presumption among the public that production of statistics is controlled by the Government of the day. Hence, official statistics should earn public trust through its production and dissemination methods. Statistical coordination at national level for each sector in respect of administrative statistics may be entrusted to the Central Ministry/ Department dealing with major chunk of the sector. Functional separation of statistical units should be ensured, and advisory, coordinating, and regulatory functions should be delineated from production functions. The protocols on quality assurance and data sharing and notified guidelines on indices and surveys may be implemented. India, being a Member of the United Nations General Assembly, suitably adopts the statistical programs, methodology, protocols, conventions, and best practices of the various organs of the General Assembly from time to time. There should be a periodical review of statistical products including data sets used in National Accounts by the nodal offices. Regulation of statistics of national importance will have to be entrusted to National Statistical Commission (NSC), constituted as a statutory corporation. If the National Policy on Official Statistics is notified and implemented and the NSC Bill is enacted, they will enormously improve the system.
V. S. Ranganadham Maddali

Poverty and Unemployment

Frontmatter
Poverty in India: Measurement, Trends and Other Issues
Abstract
Eradication of poverty is an important objective of economic policy. Therefore, measurement of poverty has to be sound as it has significant policy implications. This paper presents the methodology followed by the Expert Group (Rangarajan) and explains some of the issues that were raised after the publication of the Report. Apart from the methodology, some of the issues discussed in the paper are: use of calories, multidimensional poverty, urban poverty, NAS (National Accounts Statistics)-NSS (National Sample Survey) consumption differences, poverty measures in other countries, public expenditure and poverty, NSS and SECC (Socio-Economic Caste Census), headcount and depth of poverty, inequality and poverty and criteria for eligibility under programmes. The methodology adopted by the new group on poverty is based on sound principles. However, as the group has clearly indicated, this measure is not considered as an appropriate basis for determining entitlements under various programmes. But to obtain a general picture of the progress of the country, a suitable measure on poverty is useful. It represents absolute minimum. Obviously, policy should work towards not only to reduce the number of people below that line but also to ensure that people in general enjoy a much higher standard of living. Policy-makers must continue to follow the twofold strategy of letting the economy grow fast and attacking poverty directly through poverty alleviation programmes.
C. Rangarajan, S. Mahendra Dev
A Note on Unemployment and Its Measurement in India
Abstract
This paper sheds light on unemployment in India by drawing on literature that takes the connections between poverty measurement and the measurement of unemployment seriously and develops distribution sensitive measures. I first summarize the insights from this literature and discuss a distribution sensitive measure of unemployment from my previous work. I then present estimates of unemployment for India and various states using the above measure and an official measure (Current Weekly Status). These estimates are high both at the all-India level and for several states and union territories. Using decomposition analysis, I show that younger people contribute substantially and disproportionately to overall Indian unemployment. These findings underscore the gravity of unemployment in India, particularly among educated youth.
Sripad Motiram

Sectoral Issues

Frontmatter
Towards Inclusive Urbanisation in India
Abstract
This paper examines a number of propositions in the context of inclusive urbanisation. Urban growth itself makes urbanisation more inclusive. Widely and evenly spread pattern of urbanisation is more inclusive. Newly emerging informal urban settlements, i.e. the census towns, can play an important role in promoting urban outreach to the people in rural areas. Cities cannot be made inclusive without addressing the plight of migrants and the poor in the cities. Estimating poverty and the method of identifying urban poor has to focus more on housing and other vulnerabilities of the poor. The level of urbanisation and the dispersion of urban centres in space are closely related with the level of economic development. Regional pattern of urbanisation in India is uneven more because of uneven pattern of regional economic growth. Mega-cities have played important role in Indian economic development, yet high level of urbanisation need not depend only on mega-cities. Kerala and Punjab are outstanding examples. Newly emerging mega-cities are more dispersed regionally. The contribution of census towns to the net addition to urban population during the decade 2001–2011 has been very significant. A large number of these towns have emerged in states with very low levels of urbanisation. These towns are not statutorily recognised. If recognised, they could play an important role in urban outreach. Significant contribution to urban growth in future is likely to come from census towns. The number of rural-to-urban migrants is very large. They contributed about 17% to the net urban growth during 2001–2011. But for many impediments to migration, their number could have been much larger and urban growth much faster migrants, particularly the poor ones face a variety of discrimination and biases. Their living conditions in the cities are precarious. Official estimates of poverty are still largely food-centric. Other dimensions of poverty are more important for the urban poor in the modern context. Availability of a place to live is the most acute problem in cities. Casual nature of jobs, uncertainty of regular income, the absence of social security and lack of community support subject the poor to a number of vulnerabilities. Estimates of urban poverty and identification of urban poor should take these vulnerabilities into consideration.
Saiyed Raza Hashim
Addressing Visible Inequalities: The Minimum Policy Agenda
Abstract
Decades of extensive research and policy discourse on income and wealth inequalities brought tremendous improvement in our knowledge, but with little or no impact on ground realities. Visible inequalities abound in housing, health care and education. This essay focuses on achieving visibility of equality on the educational front, which in many ways affects other inequalities. The first 12 years of education must be completely the responsibility of the government and must serve to unite the nation.
Bhanoji Rao
‘Khadi’ Under the Neoliberal Economic Dispensation: Relevance and Issues
Abstract
Khadi, a hand-spun and hand-woven textile, is a unique segment of Micro, Small and Medium Enterprises in India. Over time, it has undergone significant changes with respect to product mix, technology and employment generation. In the present neoliberal context, Khadi is increasingly being seen mainly as an economic activity, thereby, missing out its various social, cultural, and political dimensions. This paper argues that it is still an important segment of the economy, primarily because of its flexibility in terms of time, skills, products and workforce with significant involvement of women and disadvantaged groups, particularly in rural areas. Besides, being environment friendly, it has long-term ‘existence value’. To what extent it can help ensure sustainable economic support with dignity to women and the poor, remains a mute question.
Amita Shah
Water Security in India: Three Scenarios for 2040
Abstract
The article presents the future water security scenarios of India for 2040. The estimates of future water demand are based on the premise that the demand in sectors such as domestic water supplies and food production would be driven by the long-term economic growth trends and demographic trends, respectively, whereas to allow the Indian economy to grow in various key sub-sectors, viz. industry and production of commercial crops at rates seen in the recent past, provision of water needs to be enhanced. While doing so, economic growth itself would demand change in technology, governance and environmental conditions.
M. Dinesh Kumar

Agriculture

Frontmatter
The Viability Crisis and Institutional Challenges Before Indian Agriculture
Abstract
In the concern for boosting production in agriculture, there was a tendency to ignore the farmer and the need for a farm family to have a viable income, not only to survive but also to save and invest. Unfortunately, Indian agriculture has been suffering from a growing structural weakness, with the average size of holdings and the proportion of viable holdings fast declining. This is not a question of profitability, but basically one of viability. The Green Revolution could not solve this problem, as the population dependent on agriculture kept on increasing, while the availability of land for farming could not. The non-viable holdings are more vulnerable to crises due to inadequate incomes. The viability line has to be much higher than the poverty line of income. The problem has been caused due to the failure of the non-agricultural sectors to absorb increasing rural population and provide them with alternative sources of livelihood. The problem of agriculture cannot be solved within the framework of agriculture. Policies are needed with a wider vision and stronger political will.
M. V. Nadkarni
Bane of Agriculture: Persistent Slowdown in Public Sector Investment
Abstract
Though there are occasional bouts of improved growth in agriculture due to better climate and rainfall, overall, the sector has been facing a crisis situation. The root cause for this has been the persistent decline in agricultural investment, in particular the public sector investment. It was after five decades of planning, that is in the Eleventh Plan (2006–07 to 2011–12) that the neglect of agriculture was recognised and plans for accelerating inter alia the public sector investment were proposed. But, it was short lived, and the sluggishness in investment has persisted. The paper has identified five broad phases in the long period of 67 years since the economic planning began in 1951–52 in the trends of farm investment in public and private sectors. The paper also dilates a while and addresses the question of the alleged dichotomy between agricultural subsidies and agricultural investment, that is whether subsidies have crowded out investment, but prefer to take a more cautious view. Finally, the paper has tried to establish that apart from relative price shift in favour of agriculture and impetus derived for labour-saving mechanisation, the policy of doubling of farm credit appears to have played a key role in facilitating higher private sector investment in agriculture in the latest investment phase indicated in the paper.
S. L. Shetty
Oil Palm for Edible Oil Security in India
Abstract
India harvests about 30 million tonnes of oilseeds against the world production of more than 250 million tonnes per annum. Many varieties of oils seeds along with tree origin oilseeds are cultivated in India. Although India is a major producer of oilseeds, a substantial portion of our requirement of edible oil is met through import of oil palm from Indonesia and Malaysia. It is, therefore, necessary to exploit domestic resources to maximize production to ensure edible oil security for the country. Oil palm is comparatively a new crop in India and is the highest vegetable oil yielding perennial crop. Therefore, there is an urgent need to intensify efforts for area expansion under oil palm to enhance oil palm production in the country. The Government of India promotes oil palm cultivation in certain regions of the country, so as to help the country to become self-sufficient in edible oil production. There is unique private–public partnership model which encourages farmers to take up oil palm cultivation. At present, the programme is being implemented in 12 states, namely Andhra Pradesh, Karnataka, Tamil Nadu, Mizoram, Odisha, Kerala, Telangana, Chhattisgarh, Gujarat, Arunachal Pradesh, Nagaland and Assam. This paper makes a field-level assessment of oil palm production by the selected farmers in Karnataka, Andhra Pradesh and Tamil Nadu. The study provides comparison of productivity, cost and profitability among the oil palm-growing farmers across three major oil palm growing states. The study also provides a snapshot of subsidy provisions made by the state governments. The paper provides policy suggestions on how to further encourage area expansion under oil palm.
Parmod Kumar
Accelerating Farm Income Growth: Opportunities and Challenges
Abstract
The contribution from the farming community to India’s agricultural development is huge. The agricultural sector stands as one of the biggest sectors in the world in terms of production of various crops because of the farmers’ contribution. But, the Indian farmers are not very happy today as they are passing through a painful phase over the last two decades mainly due to increased cost of cultivation and reduced income from farming. The reduced farm income resulted in increased indebtedness and widespread farm suicides. In order to increase the income of farmers, the union government has been working towards doubling the farmers’ income by 2022–23. An attempt is made in this study to bring out the true picture of farm income and also to highlight the various opportunities that can be considered to double the farmers’ income at a specified timeline. The analysis shows that the farm income is presently very low across the States in India. In order to achieve the goal of doubling farmers’ income, the paper suggests that there is a need to strengthen the overall agricultural market infrastructures, widen the procurement of crops beyond paddy and wheat and fixing minimum support prices for crops in consonance with the cost of cultivation.
A. Narayanamoorthy
Metadata
Title
Perspectives on Inclusive Policies for Development in India
Editors
Prof. Saiyed Raza Hashim
Prof. Rahul Mukherji
Dr. Brajaraja Mishra
Copyright Year
2022
Publisher
Springer Nature Singapore
Electronic ISBN
978-981-19-0185-0
Print ISBN
978-981-19-0184-3
DOI
https://doi.org/10.1007/978-981-19-0185-0

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