Practical Economic Analysis and Computation

Economic interpretation of the Karush–Kuhn–Tucker (KKT) mathematical theory leads to practical economic analysis in the context of convex quadratic production planning models of a multiplant firm with and without capacity constraints. Necessary and sufficient optimality conditions help in correcting common mistakes of intuitive economic reasoning. I demonstrate that ranking of plants by Marginal Cost at Start of Production (MCSP) helps in developing an algorithm for the problem without capacity constraints. And for the problem with capacity constraints, the Marginal Cost at Full Production (MCFP) for every plant is also relevant for algorithm development. Algorithmic proof for an equivalence theorem is another novel contribution. I develop the best possible algorithm for sensitivity analysis deriving a mapping between System Marginal cost and satisfiable demand.

A major task of mathematics today is to harmonise the continuous and the discrete, to include them in one comprehensive mathematics, and to eliminate obscurity from both (Bell, 1937). It is natural for practical economists to shift from continuous to discrete and vice versa for conceptual and computational convenience. We discuss the pitfalls involved in that process with a focus on one particular optimization problem and the use of bisection and binary search for the solution.

This note reviews Narayana and Parikh's original appraisal of the evolution of planning paradigms and models in India. We are reminded of the important debt that today's economic models owe to the contributions of a group of eminent Indian economists, among whom T.N. Srinivasan takes a central place, who devoted a large part of their careers striving to find the appropriate theoretical constructs and policies which would help pull India toward economic prosperity.

In this paper, the much-celebrated Harrod–Domar model is extended to include a non-consumable capital good. Here, the growth rate of capital is directly proportional to the saving rate and inversely proportional to the weighted harmonic mean of capital-output ratios of the two sectors. Moreover, our formula includes differential prices for the two goods. Further, here, besides flexible prices, capital-output ratio can be made a variable, more like the Solow model, for the consumer goods sector helping to balance savings and investments avoiding the famed knife-edge problem. As opposed to Piketty’s neoclassical critiques, our model can provide explanations for possible direct relationships between wealth-income ratios on one side, and interest rate and rent on the other, and help to confirm the possibilities of his well-known empirical observations.

This paper is presented in honour of Professor Kirit S. Parikh, currently at IRADE, Delhi, India. It constitutes the author’s contribution to the Festschrift on the occasion of Prof. Parikh’s 85th Birthday. Both, Prof. Parikh and the author once worked in a building called Yojana Bhavan in Delhi; he was in the Delhi Unit of the Indian Statistical Institute on the top floor of the building, and the author was a consultant to the Planning Commission on the bottom floor. In those days, both were “card carrying members” of the “computing fraternity” (because we carried boxes of punched cards to and from computer centres!).

Understanding the drivers of inflation is an important issue in business cycle research and has been a matter of debate. In this paper, using data from a large emerging economy, we identify a structural shock (inflation shock) that explains the maximum forecast error variance of consumer prices. The inflation shock explains more than 80% of the forecast error variance of consumer prices up to 40 quarters. This shock increases prices and decreases output, implying that it is a supply shock. We also show that the food inflation shock is the primitive shock, which makes the inflation shock a supply shock and also feeds into non-food inflation. A large interest rate reaction to this shock leads to a prolonged decline in credit, investment and output. Using the shocks obtained from a medium-scale new Keynesian model, we provide additional evidence that most of the variance of estimated inflation and food inflation shocks is explained by model-based supply shocks. These results suggest that central banks in emerging economies need to be more pragmatic in implementing inflation targeting policies.

The government of India till 2014 controlled the retail price of diesel and the burden of subsidies was borne by the public sector oil companies and the government. While low retail diesel price lowered the cost of distribution of goods, it increased the government fiscal deficit. The diesel subsidy reforms initiated in 2012 and the diesel pricing policy followed since 2014 by the government of India improved the fiscal position of the government and the resources of the OMCs but economic growth during the post reforms period did not improve as was expected. Three major interventions affected the economy during the post diesel reforms era (1) Diesel subsidy reforms (2) Domestic diesel pricing policy and (3) changing macroeconomic factors. This paper quantifies the individual contribution of each of the three interventions and illustrates the optimality of the diesel subsidy reforms policy. The results show that diesel price reforms and the domestic diesel pricing policy helped in cushioning the economy from adverse macroeconomic factors. The gains could have been further if the macroeconomic situation was as favourable as in the pre reforms period and the government had adopted a market-linked pricing policy for diesel (This chapter draws on an earlier paper by the author titled “Impact of India’s diesel subsidy reforms and pricing policy on growth and inflation” with permission. See (Ghosh in Energy Economics, 113:106195, 2010.)).

India, during the last five years, has been transitioning from a mere provider of IT-enabled services to a nation consisting of business organizations leveraging the power of the current digital technology to gain competitive advantage and a government aiming for better quality of life for its citizens and social inclusion. Our nation's achievement in digital public infrastructure and goods has been a spectacular success, duly acknowledged by the rest of the world.

This article attempts to illustrate the power of digital technology through representative use cases, while also highlighting the likely pitfalls and risks of new technologies to ensure a balanced approach in harnessing its immense potential. A broad spectrum of technologies, industrial sectors and generic functions of businesses and the government is covered. SWOT analysis is used to reflect about the changing circumstances and evaluating various alternatives for optimal decision making is also discussed. It ends on an optimistic note that India is currently a bright spot in the world to set an example for the entire world by assisting developing nations in their march towards progress and prosperity.

In this paper, I study the impact of India’s MSP policy on farmers’ incomes. I note that the current formula for determining the MSPs for the mandated food crops is problematic because it does not take into account market forces, i.e., demand and supply for the mandated food crops. Using a demand–supply analysis, I argue that the current MSP policy may lower the incomes of small and marginal farmers, though it may raise the incomes of large and medium farmers. Thus, the current MSP policy needs to be either modified or replaced with an alternative policy. As raising the incomes of small and marginal farmers is an important policy goal of the government, I propose three alternative policies to raise their incomes.

Agricultural production is crucial for self-consumption, especially for small and marginal farmers, as it serves as direct means to enhance  household food security and nutritional outcome in rural areas. This study aims to understand the relationship between production diversity (crop diversity, animal husbandry diversity and kitchen garden diversity) and household dietary diversity in the rural areas of Bihar and Odisha. The study finds that agricultural production diversity and consumption from diverse sources of household production have a significant and positive association with household dietary diversity. The results suggest a need to promote crop diversification and agriculture production diversity considering the state’s requirements and agro-climatic conditions. Promoting animal husbandry and preserving common property resources through appropriate policy instruments can significantly improve household access and consumption of diverse food groups. Furthermore, fostering cost-effective community and school kitchen gardens and kitchen garden cultivation at the household level can be a key policy option to address food and nutritional insecurity.

South Asia, home to around one-eighth of the world’s population, is a region rich in natural resources and has some of the world's most populous growing economies. Rapid urbanization and migration are placing a great deal of strain on the urban and semi-urban areas of this region. With water tables dropping at an unsustainable rate, the worrying depletion of clean water resources is one of the new concerns brought on by this demographic shift. In the upcoming years, the area will likely experience a severe water scarcity situation.

The prediction of risks of various diseases and identification of factors that influence these risks are important for public policies and disease diagnosis in healthcare. The biomedical literature suggests that much of an individual’s later life health outcomes are programmed at early stages of life. The programming is strongly modulated throughout life by epigenetic inputs such as psychological, financial, social or chemical stress, diets, smoking, substance use, and exercising, with stronger effects imparted in early stages of life. Traditionally estimation of the effect of these factors on risks of diseases is carried out in the statistical logistic regression framework. More recently, the deep neural network framework has shown superior predictive performance in other fields. Using the confusion matrix and other indicators, the paper compares the effectiveness of these two approaches in predicting and identifying the influential observable characteristics that are strongly associated with these risks. The paper uses the Health and Retirement Studies (HRS) dataset.

Higher economic growth in the post-liberalization phase since the 1990s was expected to translate into rapid all-around improvements in the well-being of the population. A notable exception, however, is apparent in the form of a persistently high level of child undernutrition in the face of rapid economic growth in India. We examine this discordance using different waves of National Family Health Survey (NFHS) data and find that economic growth has a more robust effect on child undernutrition during the period 2005–06 and 2015–16 than compared to earlier periods of 1992–93 and 2005–06. We argue that the quantum of growth is important for the effect to be felt on undernutrition, particularly on child stunting and underweight. We conclude that apart from relying on growth, direct investment in the health and nutrition sector should be an important priority for policymaking.

This paper examines the evolution of the COVID-19 pandemic in India with particular reference to the role played by super-spreader events like election rallies. The paper makes use of the S-shaped Gompertz curve for simulating the dynamics of diffusion of COVID-19 in different states of India. Two different models—dynamics of COVID-19 diffusion per se and a more sophisticated synthetic control method—are used to evaluate the role of outdoor election rallies in propagating the spread of the infection in COVID’s second wave. We find little statistical evidence in support of a positive relationship between elections and the spread of the virus.

In India’s growing economy and shift towards environmentally sustainable energy sources, an urgent need arises to accelerate progress towards the 2030 Sustainable Development Goals (SDGs) and fulfil the Nationally Determined Contributions (NDCs). Despite a consistent rise in renewable energy capacity, swift actions are imperative. The pivotal involvement of state governments is vital for India to meet its NDC commitments, particularly in implementing renewable energy projects. This study delves into the essential state-level strategies for achieving India's NDC renewable energy targets. It highlights the importance of efficient coordination between central and state governments in achieving ambitious objectives. Drawing from existing literature, it explores multi-level governance, capacity-building, financial mechanisms, and stakeholder engagement to enhance NDC implementation. It analyses the existing and projected power capacity scenarios, emphasising the need for technical transformation and storage technologies. Through analyses of power capacity trends, technical transitions, and storage solutions, the study recommends market-driven approaches like Renewable Power Purchase Obligations (RPOs) and Renewable Energy Certificates (RECs) to incentivise renewable adoption. India's power sector accounts for 52% of CO2 emissions. As the power sector is managed by centre and state together in a concurrent manner, it is essential that states engage actively in climate mitigation. Nationally Determined contributions (NDC3) agreed at all India levels in the Paris Agreement specify that India will reach a 50% share of renewable power in total capacity by 2030. The article assesses the current progress of each state in renewable energy, data on renewable energy resources potential of each state, and current and past policies. Their progress is uneven and it is necessary to change course to some extent. The article suggests four types of initiatives or revisions of them. A market-based mechanism: India needs to review and revamp Renewable Purchase Obligations (RPO) and Renewable Energy Certificates (REC). Power markets need to be facilitated further. B Regulatory measures: India needs to reestimate renewable energy potentials, which is underestimated. The emission norms for fossil plants should also be prescribed and monitored. Grid balancing would have to be managed by suitable time-of-use pricing policies C Institutional strengthening: The Ministry of Power and also Environment both have nodal agencies promoting renewable energy and Climate Action. They need to be tasked with the Paris goals and take a periodic review. This may call for a new mandate and capacity-building D Technological Initiatives: Transmission infrastructure would need strengthening, Storage facilities need to be increased and shared and incentives for solar rooftops and farm tops need to be increased along with capacity-building, We conclude with case studies of Gujarat, Odisha, and Assam, which offer insights into state-specific challenges and solutions, emphasising collaborative endeavours in order to achieve a cleaner and more sustainable energy future.

The transport sector is a vital sector for economic growth and development. It is a significant energy end use sector being the largest consumer of petroleum products and contributes significantly towards carbon emissions. Against the backdrop of rising transport demand in the future and India’s commitment to reducing its carbon emissions under its Nationally Determined Contribution (NDC), this study focuses on providing state-level road transport decarbonisation strategy. The study leverages on transport modelling and provides policies that tackle regional, geographical, and state-specific socio-economic challenges for three states—Gujarat, Odisha, and Assam.

In this paper, we develop a methodology for ranking countries and continents in their use of renewable energy. We then rank the countries and continents by using data for 150 countries over the period 1990–2019. The methodology involves calculating country and continent premiums in the use of renewable energy using regression analysis. South America comes the best in terms of renewable energy consumption with Paraguay taking the lead, and Europe comes second with Iceland taking the lead. Since in calculating the premiums, we control for per-capita gross domestic product, using cubic specifications we are also able to confirm the existence of an inverted N-shaped Environment Kuznets curve. The paper then tries to make a distinction between clean and dirty sources of renewable energy as robustness checks. Our findings suggest that since the use of renewable energy is vital for a sustainable environment, there is a need for greater financial development and interventions by governments to ensure that environmental quality could improve with income, given that the technical effect that comes with the relationship between income and environment quality has been shown in the literature to overshadow the scale effect. Significant heterogeneity among countries that we have found in this paper also suggests that countries can learn from each other for the benefit of everyone.

Natural gas as a source of clean fuel is important in many economies. With the increase of trade in gas led by LNG trade, market integration as occurs in other sectors is being promoted in various regions of the world. However, in India, the objective to address distributional concerns and domestic economic growth superseded the reform agenda with India adopting the market intervention approach of controlling energy prices. The policies were greatly focused towards the allocation of natural gas to priority sectors, like fertilizer, city gas distribution, power, etc., at affordable prices as the output prices of these sectors are subsidized. The interlocking of subsidies of the demanding sector and ad hoc pricing procedure adopted for gas pricing has resulted in a distorted market. As a result, natural gas share in primary energy consumption in India is about 8% as compared World average of 24% (2013). This paper examines the impacts of price reforms in the natural gas sector. In particular, the paper attempts to quantify the impacts of sequencing the pricing reforms under three plausible scenarios: (a) introduce upstream price reform without introducing reforms in the consuming sectors, i.e., fertilizer, power sector and city gas distribution; (b) introduce price reform along with partial reforms in downstream reform by removing the prioritized gas allocation policy and allowing consuming sectors to pass the increase in energy price to the end-users and introduction of full reform, i.e., price and quantity. Further, to stimulate the decision-making process for resolving the issues, the paper proposes policy recommendations.

Power systems continue to get more integrated for over a century as mini grids for small towns and cities eventually covered the entire country, and countries, in turn, got interconnected to start “regional trade”. In this paper, I have assimilated results from a series of studies that I have been part of over the last decade as part of my involvement in Asian Development Bank (ADB) and World Bank projects covering many developing countries. Results from planning analyses at a regional level, i.e., covering interconnected power systems of several countries, typically show annual benefits that are in the order of billions of dollars from cross-border trades. It is however important to analyze benefits at an individual project level including the distribution of such benefits across different scenarios to be able to prioritize projects. It is also important to note that notwithstanding the promise of phenomenally high benefits, regional trade in the developing world is thin with many of those beneficial projects not transpiring in reality, or even if they did, the volume of trade remains low. I have concluded the discussion by recounting some of the key lessons that I learned from my engagements in various projects.