Archives: Event

NCAER invited a talk on “Trends in India’s Income Distribution” by Dr Surjit S. Bhalla on February 15, 2018. Dr Bhalla is Senior India Analyst for the Observatory Group, Chairman of Oxus Research & Investments and a member of the Prime Minister’s Economic Advisory Council and of NCAER’s Governing Body. Dr Pronab Sen, Country Director for the International Growth Centre was the discussant.

While much is known about how the distribution of consumption in India has changed over time, the evolution of income distribution in India is still a relative unknown. Household surveys at the national level with data both on consumption and income have been conducted in India, primarily by NCAER. The known limitations of consumption and income surveys (not able to capture the consumption/income of the top 1 to 5% of the income distribution) have led Thomas Piketty and colleagues to develop a data base for evaluating trends in income distribution for many countries. Dr Bhalla discussed his paper which evaluates the Piketty methodology, and the resulting data for India. In particular, the paper examines trends in consumption and income distribution using several different methods and sources. The paper’s estimation approach stays as close as possible to the Piketty methodology of integrating and matching three sources of data—consumption, income, and tax returns. Bhalla does not obtain the Piketty results for any consistent set of assumptions about consumption, income, or tax payments.

Surjit S. Bhalla is the Senior India Analyst for the Observatory Group, a New York-based macroeconomic policy advisory firm, Chairman of Oxus Research & Investments in New Delhi, a member of the Prime Minister’s Economic Advisory Council and a member of NCAER’s Governing Body. Bhalla has taught at the Delhi School of Economics and was the Executive Director of the Delhi-based Policy Group. He has worked as a research economist at the Rand Corporation, the Brookings Institution, in the research and treasury departments of the World Bank, and as a consultant to Warburg Pincus. He worked on Wall Street at Deutsche Bank and at Goldman Sachs. He is the author of several academic articles as well as of Imagine There’s no Country (2002), Devaluing to Prosperity (2012), and The New Wealth of Nations (2017). His first book, Between the Wickets: The Who and Why of the Best in Cricket (1987), developed a model for evaluating performance in sports. Bhalla is a regular contributor to Indian newspapers, magazines, and television on financial markets, economics, politics and cricket. He is a contributing editor for the Indian Express. Bhalla has a PhD in Economics from Princeton University, a Master’s in Public and International Affairs from the Woodrow Wilson School at Princeton, and a Bachelor’s degree in Electrical Engineering from Purdue University.

Pronab Sen is the Country Director for the India Growth Centre’s India Central Programme. Most recently he was the Chairman of India’s National Statistical Commission, Secretary in the Ministry of Statistics and Programme Implementation, and Principal Adviser, Power and Energy, at the Planning Commission. He received his PhD in Economics from Johns Hopkins University.

NCAER invited Dr Poonam Gupta, Lead Economist, the World Bank for an exclusive presentation of the 2018 India Development Update—India’s Growth Story. The India Development Update is a biannual flagship publication of the World Bank which takes stock of the Indian economy. Dr Gupta discussed the current, March 2018 issue, titled “India’s Growth Story” which describes the state of the Indian economy, shares India’s growth experience and trajectory over the past several decades and provides a long-term perspective on India’s growth outlook.

In her talk attended by NCAER research faculty, Dr Gupta spoke on the key findings of the Update. Over the last 50 years, the Update notes that India’s average growth has accelerated slowly but steadily across sectors – agriculture, industry and services – and become more stable. This is reflected in increasing labor productivity and total factor productivity. After growing far more rapidly before the global financial crisis, the economy has grown at an average rate of about 7 percent since 2008–09.  The Update centers around an assessment of what it will take for India to return to growth rates of 8 percent and higher on a sustained basis. India will need to keep a close eye on several factors to make the country more resilient to shocks: the changing landscape of open trade, reforms in the banking sector, strengthening financial institutions, and regulatory supervision of the financial sector to sustain its growth path. Deepening its structural reforms in the areas of health, education and service delivery will be critical for development of human capital required to sustain growth, says the report.

A brief excerpt from the report is as follows:

Outlook

India’s GDP growth saw a temporary dip in the last two quarters of 2016-17 and the first quarter of 2017-18 due to demonetization and disruptions surrounding the initial implementation of GST. Economic activity has begun to stabilize since August 2017. India’s GDP growth is projected to reach 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent in 2018-19 and 2019-20 respectively. While services will continue to remain the main driver of economic growth; industrial activity is poised to grow, with manufacturing expected to accelerate following the implementation of the GST, and agriculture will likely grow at its long-term average growth rate.

India’s growth in recent years has been supported by prudent macroeconomic policy: a new inflation targeting framework, energy subsidy reforms, fiscal consolidation, higher quality of public expenditure and a stable balance of payment situation. In addition, recent policy reforms have helped India improve the business environment, ease inflows of foreign direct investment (FDI) and improve credit behavior.

The Update points to the positive impulse expected from India’s novel GST system which, while remaining more complex than comparable systems in other countries, is likely to improve the domestic flow of goods and services, contribute to the formalization of the economy and sustainably enhance growth.

Higher growth requires reforms

Despite the recent momentum, attaining a growth rate of 8 percent and higher on a sustained basis will require addressing several structural challenges. India needs to durably recover its two lagging engines of growth – private investments and exports – while maintaining its hard-won macroeconomic stability. Crucial steps in this process include cleaning up banks’ balance sheets, realizing the expected growth and fiscal dividend from the GST, and continuing the integration into the global economy.

“Durable revival in private investments and exports would be crucial for India achieving a sustained high growth of 8 percent and above,” said Dr Gupta,. “This will require continued impetus for structural reforms. Resorting to countercyclical policies will not help spur sustained growth and India should not compromise its hard-earned fiscal discipline in order to accelerate growth,” she added.

Priority areas for reform

Investments: The rate of investment needs to accelerate. Private investment in India is constrained by several factors including issues related to past leverages, credit availability, market demand, and policy uncertainty. Understanding and relieving the generic, spatial, or sector-specific constraints to investment growth is important. Further policy measures should aim at assuring an efficient mix of public and private resources to effectively use scarce public funds and crowd-in private investment. Private sector investment in particular needs to be enhanced, through measures that assure a favorable investment climate while reducing policy uncertainty.

Bank Credit: Reviving bank credit to support growth is important. The banking sector is experiencing high balance sheet stress. The genesis of the problem can be traced to the period of exuberant bank credit growth during 2004–08, and to the response to the global financial crisis, which entailed evergreening of loans. Decisive reforms will be needed to enable the Indian banking sector to help finance India’s growth aspirations. The implementation of the new Insolvency and Bankruptcy Code is an important step towards improving the credit behavior; and the recent efforts towards recapitalization have the potential to ease stress on the banking sector and reinvigorate bank credit. However, they need to be followed by wider reforms. Additional measures could include a consolidation of public-sector banks, revising their incentive structure to align more closely with their commercial performance, ensuring a level playing field for private banks, and opening the space for greater competition.

Exports: Export growth rate remains well below the levels registered during the boom years of 2004-2008. The Update points out that India’s export growth has lagged global growth in recent years. Among the many preconditions for India to reverse this pattern are an infrastructural boost to bring it on par with the world’s current manufacturing hubs. In addition, reforms to land, labor and financial markets would be needed to assure the continued competitive supply and use of key production inputs. Finally, building on recent improvements to its doing business ranking, India can benefit from further strengthening its competitive business environment.

Leverage external conditions: As India has increased the level of integration with the rest of the world in recent years, it could benefit from the revival in the global economy and trade volumes, both of which are poised to grow at healthy rates in the near-term. Leveraging the global recovery will be key for India to elevate its growth rates. While oil prices pose less of a risk for the Indian economy, the expected normalization of monetary policy by the US and other advanced economies are likely to tighten financing conditions.

The complete report is available at the World Bank’s website.

A seminar on “New Approaches to the Financial Inclusion of Small Farmers in India: Some Experimental Results,” with Dr Dilip Mookherjee, Boston University was held at NCAER. Dr Renuka Sane, an Associate Professor at the National Institute of Public Finance and Policy (NIPFP) was the discussant.

In many parts of India, such as West Bengal, formal credit does not reach small farmers owing to lack of collateral, low banking penetration and the absence of credible targeting of productive farmers. This limits the effectiveness of directed lending programmes in stimulating agricultural growth or reducing rural poverty. Microcredit (e.g., via Self-Help Groups) does not help finance agriculture either, owing to high-frequency repayment requirements, joint liability loans and intensive monitoring.

The paper reports on randomised controlled trials with a new approach in which an agent from within each local community is appointed and asked to recommend high productivity farmers for low interest loans. Agents are incentivized by commissions linked to loan repayments. In the first experiment labelled TRAIL, a private trader/lender with extensive trading experience within the village is appointed. The second approach, GRAIL, asks the local Gram Panchayat to appoint an agent. The performance of these two approaches is compared with the conventional approach to providing microcredit (GBL). TRAIL turns out to be highly successful in raising the output of potatoes, the leading cash crop in West Bengal, and in raising annual farm incomes, both by about 20 to 30 percent. GBL does not have a significant positive impact on either, and GRAIL performs between TRAIL and GBL. All three achieve loan repayment rates of around 95 percent. TRAIL also achieves higher take up and incurs lower administrative costs compared to GBL.

The reasons for TRAIL’s superior performance include better targeting of productive farmers, and motivating them more strongly to improve farm performance. These results suggest that the appointment of private commission agents by formal lending institutions is a promising strategy for increasing financial inclusion.

Dilip Mookherjee is Professor of Economics at Boston University, where he is also the Director of the Institute for Economic Development. He is a member of the Research Panel for NCAER’s India Policy Forum and is also currently the Lead Academic of the India Central Program of the International Growth Centre. He has previously taught at Stanford University and the Indian Statistical Institute, New Delhi. His research focuses on food marketing, land and forest rights, governance, microfinance and financial regulation in South Asia. His books include Market Institutions, Governance and Development (2006) and Incentives and Institutional Reform in Tax Enforcement (1998). He studied economics at Presidency College, Kolkata, and at the Delhi School of Economics, and received his PhD from the London School of Economics.

NCAER presented its Quarterly Review of the Economy, covering the performance of the Indian Economy in the third quarter of 2017-18 and forecast for the year ahead at this seminar held at NCAER. Organised as an integral part of the Quarterly Review, this seminars brought together policymakers, industry leaders and researchers for a discussion.

Key Highlights of NCAER’S Quarterly Review of the Economy

NCAER forecasts growth based on both quarterly and annual models. Based on the annual model, NCAER forecasts a growth of 6.3 per cent for 2017–18 for GVA (Gross Value Added) at basic prices, and of 6.7 per cent for the Gross Domestic Product (GDP) at market prices. These forecasts are at constant (2011–12) prices. For 2018–19, NCAER forecasts a growth of 7.5 per cent for GDP at market prices and 7.2 per cent for GVA at basic prices.

In 2017–18, the real agriculture GVA is envisaged to grow at 1.0 per cent, real industry GVA at 5.2 per cent, and real services GVA at 8.0 per cent. The Wholesale Price Index (WPI) inflation is projected at 6.4 per cent for 2017–18. The growth rates in exports and imports, in dollar terms, are estimated at 12.8 per cent and 24.8 per cent, respectively, in 2017–18. The current account balance and central fiscal deficit, as percentages of GDP, are projected at –2.0 per cent and 3.5 per cent, respectively, for 2017–18. These estimates have been revised upwards since November 2017 based on the positive outlook emanating from the leading indicators in 2017–18:Q3.

The NCAER quarterly model forecasts that Gross Value Added at Basic Prices (2011–12) will grow at 6.5 per cent in 2017–18 and at 7.2 per cent for 2018–19 on a y-o-y basis.

In the agriculture sector, despite the rainfall being below normal both during and after the monsoon, the estimated output of major crops computed by NCAER, based on area and output equations, suggests that the output of kharif foodgrains is expected to be 139.8 million tonnes to 141.2 million tonnes, signifying an increase of 1–2 per cent over last year’s output of 138.5 million tonnes. The output of rabi foodgrains is also expected to remain close to last year’s output of 137 million tonnes. The output of oilseeds in both the kharif as well as the rabi seasons is also expected to be close to last year’s output, and the situation is likely to be similar in the case of both cotton and sugarcane.

The Index of Industrial Production (IIP), a measure of industrial performance, noted a year-on-year (y-o-y) growth of 3.7 per cent during the period April–December 2017–18, versus 5.1 per cent recorded during the corresponding period in 2016–17.  However, the aggregate figure masks the recovery achieved in November and December, 2017, driven by growth in manufacturing. The outlook is, however, uncertain with both the Nikkei PMI Index and the SBI Composite Index showing relatively slower economic growth in January 2018 as compared to the two preceding months. The capital goods sector has specifically experienced steady growth since August 2017 and double-digit growth in October and November 2017, pointing to a positive sign of investment spending. The consumer non-durables sector also showed double-digit growth of 10.4 per cent in April–December 2017 versus 7.5 per cent during the corresponding period of the previous fiscal. Cumulatively the core infrastructure industries registered a growth of 4 per cent during the period April–December, 2017–18, as compared to 5.3 per cent recorded during the corresponding period the previous year.

The lead indicators from the service sectors in the third quarter suggest a positive outlook for the aviation sector, tourist arrivals, cargo traffic production of commercial vehicles, and banking credit to the commercial sector. The exports of software services showed positive growth in the first two quarters of the current fiscal. The growth in the Nikkei PMI services confirms the positive outlook.

The exports of goods, in dollar terms, show a year-on-year (y-o-y) growth of 11.8 per cent between April and January 2017–18. The y-o-y growth in January 2018 moderated to 9.1 per cent after growing at 30.1 per cent and 12.4 per cent in November and December 2017, respectively. The imports of goods in dollar terms showed a 22.2 per cent y-o-y increase during the period April–January 2017–18. Merchandise imports grew at 26.1 per cent in January 2018 on a y-o-y basis. Merchandise imports continued their growth momentum from the previous two months of November and December 2017. The merchandise trade deficit of US$88,337 million increased to US$ 131,155.5 million over the period April–January 2016–17.  Service exports showed a moderate growth of 0.2 per cent in 2017–18:Q3 while imports declined.   The Indian rupee appreciated against the dollar throughout 2017, recording an overall appreciation of 5.9 per cent between January and December 2017.

While the aggregate retail and wholesale inflation rates showed an upward trend during the period October to December 2017, there were significant differences in the month-on-month rates. There is a slight correction in the prices for January 2018 with both the CPI and WPI inflation figures recording a significant reduction from the highs they touched in December 2017. Food prices, particularly the prices of fruits and vegetables continue to be volatile, causing significant variations in inflation.

As regards the monetary space, the Reserve Bank of India maintained the status quo at its sixth bi-monthly meeting in February 2018, with the policy repo rate remaining unchanged at 6.0 per cent for the FY 2017–18. Based on the current and evolving macroeconomic situation of the economy, the RBI is expected to continue with the neutral liquidity stance in the coming months.

In the realm of public finance, the period of 2017–18:Q3 recorded one of the highest y-o-y increases in Fiscal Deficit (FD), at 129.1 per cent, and in Revenue Deficit (RD), at 143.3 per cent, over the previous eight quarters. FD and RD showed y-o-y increase of 129.1 per cent and 143.3 per cent respectively in 2017–18:Q3. A rise in the total expenditure with a lesser aggregate revenue has led to a higher fiscal deficit. The large deterioration in the revenue deficit has been mainly triggered by the 9.3 per cent quarterly increase in revenue expenditure and 7.9 per cent decline in revenue receipts on a quarterly basis.

NCAER’s quarterly report is designed to meet the needs of policy makers, corporates and others interested in tracking the latest developments in the Indian economy.

It provides an analysis of current policies and tracks developments in both the domestic as well as the global economies. The growth forecasts of NCAER are objective and are widely quoted and referred to in both the Indian as well as international media.

This joint seminar brought together the Executive Directors of five institutions, namely, the Centre for Policy Research (CPR), Indian Council for Research on International Economic Relations (ICRIER), India Development Foundation (IDF), National Council of Applied Economic Research (NCAER), and National Institute of Public Finance and Policy (NIPFP to present their more reflective assessment of the Union Budget 2018-19.

The 2018-19 Budget has already generated considerable interest, perhaps more than most recent budgets. Of particular concern is how the impact of recent structural measures on macroeconomic and fiscal policy and the Government’s commitment to future fiscal reforms and prudence will be reflected in this budget. Against this backdrop, the heads of the five institutes shared their views of the Union Budget and its longer-term implications for the Indian economy under the leadership of the NDA Government. NCAER was represented by its Director-General, Dr Shekhar Shah. Mr. Shyamal Majumdar, the editor of the Business Standard, moderated the discussion and the Q&A with the audience.

The Union Budget in India remains the bellwether of where the government is headed with its economic policies. But much of the immediate commentary and excited dialogue on TV and the newspapers takes a narrow, short-term view. As a counter, the executive directors of five of India’s leading economic policy research institutes came together in March 2007 for the first time to present their assessment of the longer term reform and development implications of the Budget. This joint event runs into its 12th year in 2018.