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India Policy Forum 2014-15

This India Policy Forum 2014–15 comprises papers and highlights of the discussions at the 11th India Policy Forum (IPF) held in New Delhi on July 15–16, 2014. The IPF explores India’s rapidly evolving and sometimes tumultuous economic transition and its underlying reform process using policy-relevant, rigorous, empirical research. The IPF is sponsored and organised by NCAER. The 2014 IPF featured a Roundtable on “The State and the Enterprise: How Should the New Indian Government Reset the Relationship?” The 2014 IPF Annual IPF Lecture, “India: Changing Mindsets, Accelerating Growth, Reducing Inequality,” was delivered by Surjit Bhalla, a member of NCAER’s Governing Body and Chairman, Ox[us] Investments.

 

2014|15, Volume 11, Papers

 

 

 

 

 

 

The complete volume is available at the ‘Download’ link below

 

The complete set of IPF Volumes, can be viewed and downloaded here.

Greece Financial Crisis

ग्रीस के आर्थिक संकट को लेकर चिंता की लकीरें पूरी दुनिया में दिखाई पड़ी हैं। भारत पर इसका बहुत ज्यादा असर शायद न पड़े, लेकिन ग्रीस के इस संकट में बहुत सारे सबक जरूर हैं, जिनमें भारत ही नहीं, दुनिया के तमाम देशों के पास सीखने लायक बहुत कुछ है। लेकिन इन बातों पर आने से पहले हमें ग्रीस के आर्थिक संकट को समझना होगा।

ऐसा बहुत कम होता है कि कोई संप्रभुता प्राप्त देश ही दिवालिया हो जाए, ग्रीस के साथ इस समय यही हुआ है। यह ऐसा संकट है, जिसके लक्षण वहां 2008 के आस-पास दिखने लग गए थे। इसके कारण तो और भी पुराने हैं। यह संकट बरसों से संचित हो रही सरकारी बजट की गड़बड़ियों और ग्रीस के आंतरिक भ्रष्टाचार का भी नतीजा है। लेकिन इसका एक बड़ा कारण ग्रीस के यूरोपीय संघ और यूरो मुद्रा को अपनाने की वजह से है। किसी भी देश के पास जब अपनी मुद्रा होती है, तो उसके पास इसे नियंत्रित करने के कई अधिकार भी होते हैं। वह चाहे, तो निर्यात बढ़ाने और ज्यादा लोगों को रोजगार देने की रणनीति के तहत अपनी मुद्रा का अवमूल्यन कर सकता है। वह चाहे, तो अपनी जरूरत के हिसाब से मुद्रा की आपूर्ति को घटा या बढ़ा भी सकता है। वह अपने बाजार और अपनी अर्थव्यवस्था में स्थिरता लाने के लिए कई फैसले ले सकता है। ग्रीस ने जब यूरो मुद्रा को अपनाया, तो उसकी यह आजादी अपने आप खत्म हो गई। वह अब यूरो पर असर दिखाने वाला कोई फैसला नहीं ले सकता। ग्रीस के आर्थिक संकट के कारण कई हो सकते हैं, लेकिन ग्रीस का यूरो जोन में शामिल होना संकट-समाधान के उसके कई रास्ते खत्म कर देता है।

बेशक, यूरो अभी दुनिया की एक बहुत मजबूत मुद्रा है, यह मजबूती जर्मनी और फ्रांस की वजह से है। अगर यूरो मुद्रा न शुरू हुई होती, तो भी जर्मनी और फ्रांस यूरोप की सबसे मजबूत अर्थव्यवस्थाओं में रहते, उनकी इस मजबूती में शायद यूरो की भूमिका उतनी बड़ी नहीं है। लेकिन बाकी देशों को यूरो ने किसी न किसी तरह नुकसान पहुंचाया है। ग्रीस का संकट हम देख ही रहे हैं, पुर्तगाल और आयरलैंड जैसे देशों में इतना बड़ा संकट नहीं है, लेकिन समस्या वहां भी बनी हुई है। आर्थिक परेशानियां यूरो जोन के अन्य देशों में भी उभर रही हैं। इसके मुकाबले यूरोप के जो देश यूरो जोन में शामिल नहीं हुए, उनके लिए समस्या इतनी बड़ी नहीं है।

सात साल पहले, जब ग्रीस में संकट के लक्षण पहली बार दिखे थे, तो यूरोपीय आयोग, यूरोपियन सेंट्रल बैंक और अंतरराष्ट्रीय मुद्रा कोष ने मिलकर उसे संकट से उबारने का एक पैकेज तैयार किया था। ऐसी संस्थाएं जब कर्ज देती हैं,  तो कई तरह की शर्तें लगाती हैं, जैसे वित्तीय घाटे को तेजी से कम करना होगा, वगैरह। भारत पर जब आर्थिक संकट आया था, तो उसे भी ऐसी शर्तों पर कर्ज मिला था। इन संस्थाओं की शर्तों को पूरा करने के लिए जरूरी था कि ग्रीस सरकारी खर्चे में तेजी से कटौती करे। यह कटौती की भी गई, लेकिन इससे कोई मदद मिलने की बजाय संकट और गहरा गया। सरकारी खर्चों में कटौती से दो नुकसान एकदम सीधे हुए- एक तो इससे बेरोजगारी बढ़ गई और दूसरे, इससे जनता को मिलने वाली सुविधाएं एकदम से कम हो गईं। इन सबसे असंतोष बढ़ गया। इस बीच नया निवेश कहीं से नहीं हुआ और अर्थव्यवस्था का विकास नहीं हो सका। कर्ज बढ़ता गया, लेकिन सकल घरेलू उत्पाद, यानी जीडीपी में कोई बढ़ोतरी नहीं हुई। इसी के चलते अपने इतिहास पर गर्व करने वाला यूरोप का यह देश दिवालिया होने के कगार पर पहुंच गया है। वहां ज्यादातर बैंक इन दिनों बंद चल रहे हैं। बैंकों में जमा धन निकालने तक पर पाबंदी लगा दी गई है।

इस बीच ग्रीस की सत्ता में ऐसा वामपंथी दल पहुंच चुका है, जो यह मानता है कि सरकारी खर्चों में कटौती वापस ली जानी चाहिए। साथ ही, वह इस मुद्दे पर जनमत-संग्रह की बात भी करता रहा है कि क्या ग्रीस को यूरो जोन से अलग हो जाना चाहिए? इस बीच, वहां यह सोच भी जोर पकड़ रही है कि ग्रीस अगर यूरो जोन में शामिल नहीं होता,  तो शायद वह संकट से उबरने के ज्यादा अच्छे फैसले कर सकता था। कम से कम वह मुद्रा-आपूर्ति को नियंत्रित कर सकता था, निर्यात को प्रोत्साहन देने के लिए योजनाएं बना सकता था, नए निवेश को आमंत्रित करने के रास्ते बना सकता था।

अगर ग्रीस यूरो जोन से अलग हो जाता है, तो क्या होगा? बेशक, यह बहुत आसान नहीं है और इससे ग्रीस की सारी समस्याएं खत्म हो जाएंगी, यह भी नहीं कहा जा सकता। यूरो जोन से अलग होने के बाद ग्रीस को आत्म-निर्भर बनने की कठिन कवायद करनी होगी। और शुरू में इस अलगाव का एक झटका शायद पूरी दुनिया और खासकर यूरोप की अर्थव्यवस्था को भी लगेगा। लेकिन दीर्घकाल के हिसाब से देखा जाए, तो शायद यह सबके लिए अच्छा ही हो।

सोमवार को जब इस संकट के गहरा जाने की खबर आई, तो भारत के शेयर बाजारों में शेयर कीमतें अचानक ही लुढ़कने लगीं। तकरीबन, सभी तरह के शेयर सूचकांकों ने गोता लगाना शुरू कर दिया। हालांकि, शाम होते-होते बाजार थोड़ा संभल गया और मंगलवार को ग्रीस संकट से उपजी निराशा नदारद होती दिखाई दी। कारोबार के तौर पर भारत यूरो जोन से जुड़ा हुआ है, लेकिन भारत का ज्यादा कारोबार जर्मनी और फ्रांस से ही है। ग्रीस से भारत का ज्यादा व्यापार नहीं है, इसलिए बहुत सीधा और बहुत ज्यादा असर पड़ने का खतरा नहीं है। यूरो अगर टूटता है, तो इसका असर हो सकता है, लेकिन वह भी बहुत ज्यादा नहीं होगा। दूसरे, पिछली वैश्विक आर्थिक मंदी के मुकाबले इस बार भारत ज्यादा अच्छी स्थिति में है। भारत का वित्तीय घाटा कम हुआ है, विकास दर की संभावनाएं बढ़ी हैं, मुद्रास्फीति कम है और ब्याज दरें भी नीचे आ रही हैं। इसलिए हो सकता है कि भारत को इस संकट से कुछ फायदा ही मिल जाए। यूरोप के संकट को देखते हुए कई निवेशक भारत का रुख कर सकते हैं, क्योंकि भारत का बाजार इस समय ज्यादा स्थिर है और यहां संभावनाएं भी ज्यादा हैं।

इसी के साथ हमें ग्रीस संकट से यह सबक भी ले लेना चाहिए कि मजबूत वित्तीय नीतियों का कोई विकल्प नहीं है। और यह मजबूती पूरे देश में समान रूप से दिखनी चाहिए। आम तौर पर हम जब वित्तीय स्थिरता की बात करते हैं, तो सिर्फ केंद्र सरकार की नीतियों को ही देखते हैं। लेकिन पूरे देश की आर्थिक स्थिति का आकलन करने के लिए हमें इसमें राज्यों की अर्थव्यवस्था और उनकी नीतियों को भी शामिल कर लेना चाहिए। केंद्र के पैमाने पर आर्थिक स्थिरता का अर्थ यह नहीं है कि राज्यों के मामले में भी ऐसा ही हो रहा है। कई राज्यों में स्थिति काफी खराब है। स्थिरता के लिए पूरे देश का आंतरिक विकास जरूरी है।
(ये लेखक के अपने विचार हैं)

NCAER’s Business Confidence Index falls sharply in the fourth quarter of 2014-15

Press Release
Highlights of NCAER’s most recent Business Expectation Survey for Quarter 4 2014-15

  • The 92nd round of Business Expectations Survey (BES) carried out in March 2015 reveals that business sentiment has fallen sharply.  The BCI decreased by 6.9 per cent over the previous quarter.
  • All components of BCI declined between January and April 2015.  Firms’ views about macro factors – ‘overall economic conditions will be better in next six months’ and ‘present investment climate is positive’ declined the most compared to January 2015.
  • All sectors of the economy other than the Consumer durables sector registered a fall in BCI over the last quarter with the Services sector showing the largest fall (13.6 per cent) followed by the Capital goods sector at 13.1 per cent. The consumer durables sector registered a marginal increase in BCI of 0.8 per cent over the previous quarter. This sector has the highest BCI.
  • The regional distribution of responses reflects mixed perceptions. All regions other than the South show a decline in BCI with the East falling the most.  The BCI of the East fell by as much as 18.9 per cent followed by the West 9.5 per cent. The BCI of the South increased by 0.8 per cent.
  • The disaggregation of responses by firm size also exhibits pervasive gloomy sentiments. The BCI of the ₹100 to 500 crores firms declined the maximum 9.2 per cent. This was followed by the less than ₹1 crore firms whose BCI declined 8.6 per cent. The only group that showed a marginal increase in BCI is the ₹10 to 100 crores firms whose BCI increased 0.4 per cent.
  • The distribution of firms by ownership type reveals deterioration in all categories with Partnership/ individual-owned firms falling the most.
  • Sentiments regarding production domestic sales exports imports of raw materials and pre-tax profits are mixed. While sentiment regarding sales and exports was subdued with larger firms not expecting an increase in either sentiments regarding production was discouraging.
  • The trend of a continuous rise in the Political Confidence Index (PCI) was reversed in April 2015 when PCI fell 8.9 per cent over the last quarter.  Components of PCI show mixed results with only two improving and six deteriorating.
  • Across industries PCI fell for all groups with the ‘Consumer non-durables’ group falling the most. With regard to regions only the East showed a marginal rise in PCI while others fell sharply.  Firm size wise the ₹100 to 500 crores companies are the only ones to show an increase in PCI.
  • Across industries PCI fell for all groups that of Consumer non-durables falling the maximum. With regard to regions only the East showed a marginal rise in PCI and others fell sharply.  Firm size wise the ₹100 to 500 crores companies are the only ones to show increase in PCI.

Dr Bornali Bhandari Fellow NCAER noted that “the downturn in (relative to December 2015) sentiments about the macro economy is a matter of concern. Declining sentiments about the investment climate is worrisome in the back ground of patchy and uneven growth in 2014–15 and does not foretell improvement investment scenario in 2015–16.”

 

Brief Methodology:  The National Council of Applied Economic Research (NCAER) has been conducting Business Expectations Survey (BES) every quarter since 1991.  It tracks the business sentiments of over 500 Indian companies to compute the composite index Business Confidence Index (BCI).   The survey consists of responses from firms/industries across six cities to assess business sentiments in four regions of India. Delhi NCR represents the North Mumbai and Pune represent West Kolkata represents the East and South is represented by Bangalore and Chennai. Industries are adequately represented with regard to ownership type (namely public sector private limited public limited partnership/individual ownership and MNCs) industry sector (namely consumer durables consumer non-durables intermediate goods capital goods and services sector) and firm size based on their annual turnover (in the range of less than ₹1 crore ₹1 to 10 crores ₹10 to 100 crores ₹100 to 500 crores and more than ₹500 crores).  The sample is drawn randomly from a list of industries in each city drawn from various sources. A sizeable number of units taken in one round are retained in the next round to maintain continuity of analysis.

 

The Business Confidence Index (BCI) is developed based on four questions. Two are devoted to macro factors and another two to micro factors.  All four questions carried equal weight. The BCI is a simple average of all the positive responses to three questions and in the case of fourth question (capacity utilisation) an average of sum of the responses to improvement and no improvement is taken. Then BCI is compared with the base value to know the change.  If the BCI increases for a particular round it is due to the larger proportion of positive responses in that round. The positive responses may increase for a specific question. An increase in the level of BCI reflects optimism in the business sector on the performance of the economy.

 

About NCAER

NCAER the National Council of Applied Economic Research is India’s oldest and largest independent economic think-tank set up in 1956 at the behest of Prime Minister Jawaharlal Nehru to inform policy choices for both the public and private sectors.  Over nearly six decades NCAER has served the nation well with its rich offering of applied policy research unique data sets evaluations and policy inputs to central and state governments corporate India the media and informed citizens. It is one of a few independent think-tanks world-wide that combines rigorous economic analysis and policy outreach with data collection capabilities particularly for large-scale household surveys. NCAER is currently led by its Director-General Dr Shekhar Shah and governed by an independent Governing Body chaired by Mr Nandan M. Nilekani.
Media Contact:
Dr Bornali Bhandari&Ms Shilpi Tripathi
NCAER| National Council of Applied Economic Research
11 Parisila Bhawan
IP Estate New Delhi
(T) : 011-2345-2605 (D) 011-2337-9861       Email: stripathi@ncaer.org

Business confidence falls sharply in March quarter: Survey

NEW DELHI: Business sentiment fell sharply in the March quarter due to concerns over investment climate amid “patchy” and “uneven growth” said a survey today.
“The 92nd round of Business Expectations Survey (BES) carried out in March 2015 reveals that business sentiment has fallen sharply. The BCI decreased by 6.9 per cent over the previous quarter” said a survey by economic think tank National Council of Applied Economic Research (NCAER).
All components of BCI (Business Confidence Index) declined between January and April NCAER said.
The downturn in (as against December qtr) sentiments about the macro economy is a matter of concern said Bornali Bhandari Fellow NCAER.
“Declining sentiments about the investment climate is worrisome in the background of a patchy and uneven growth in 2014­15 and does not foretell improvement investment scenario in 2015­16” Bhandari said.
As per the survey all sectors barring consumer durables registered a drop in BCI over the last quarter with services showing the largest fall (13.6 pc) followed by capital goods at 13.1 per cent.
The consumer durables sector registered a marginal rise of 0.8 per cent over the previous quarter.
The survey further said the disaggregation of responses by firm size also exhibits pervasive gloomy sentiments.
The BCI of Rs 100 to 500 crore firms declined the most 9.2 per cent followed by less than Rs 1 crore firms whose BCI declined by 8.6 per cent.
“The only group that showed a marginal increase…is the Rs 10 to 100 crore firms whose BCI increased 0.4 per cent” the survey said. Sentiments regarding production domestic sales exports imports of raw materials and pre­tax profits are mixed it said.
While sentiment regarding sales and exports was subdued ­­ with larger firms not expecting an increase in either ­­ sentiments regarding production was discouraging it said.
The survey further said that trend of a continuous rise in the Political Confidence Index (PCI) was reversed in April when PCI fell 8.9 per cent over the last quarter.
Components of PCI showed mixed results with only two improving while six deteriorating.
NCAER Business Expectations Survey (BES) tracks business sentiment of over 500 Indian companies.

Inflation targeting is not a good idea

This article published in BusinessLine is written by Dr Kanhaiya Singh a Senior Fellow at NCAER.
The Centre and the Reserve Bank of India signed an agreement on February 20 2015 which intends to put in place the inflation targeting framework (ITF) as the preferred monetary policy approach to be operated by the RBI. The objective for monetary policy that it has set is “to maintain price stability while keeping in mind the objective of growth”.
The target lies in a flexible band of 2 per cent to 6 per cent of CPI-based inflation. Deviation in inflation from this band in either direction for a consecutive period of three quarters (nine months’ average) would mean a failure to meet the target. The RBI governor would have to offer explanations for the deviation and the timeline to bring the inflation within the desired band. This effectively means that the RBI has to follow the ITF overriding other objectives of monetary policy. Moreover the agreement does not include any commitment on the part of the government to maintain fiscal prudence.
Clarifying the position
Essentially the ITF approach consists of setting an inflation target aligning monetary policy to ensure its attainment and doing so in a manner that is both transparent and accountable. It requires a robust and predictable relationship between output gap inflation and policy rate in the economy to exploit a trade-off. It also requires the ability to forecast potential output and demand which together determine output gap the expected inflation and the corresponding time path for policy rate that would keep inflation within the stipulated limit.
However the monetary policy statements do not go beyond fan charts for inflation and growth in gross value added. Specifically there is no answer to several pertinent questions for example the contribution of policy rates in bringing down recent WPI inflation or the effect of prolonged high interest rate on potential output. In the absence of such transparency the decisions on policy rates seem to remain as ad hoc as before.
Therefore the RBI has the responsibility to make public the source of its confidence in shifting to ITF despite the uncertainties regarding supply shocks and productivity growth across sectors. The 2014 report of the expert committee to revise and strengthen the monetary policy framework also did not show any such preparedness.
Moreover the Reserve Bank of India Act 1939 (amended up to February 2013) has no provision to allow the RBI and the Union government to enter into such an agreement. In such a situation the legal status of the agreement is not clear.
Coping with instability
At the same time the pure inflation targeting regime is already under strain as it has not been able to cope with financial instability and supply side shocks. Since the 2008 crisis central banks have found themselves faced with new challenges which have raised questions about the future of inflation targeting as a framework for the conduct of monetary policy; modifications are being suggested to incorporate additional goals. In fact for the past five years several inflation targeting countries have missed their target bands and suffered from excessive instability in interest rate exchange rates and GDP growth.
In contrast China and the US which together produce more than one-third of the global income do not have an explicit inflation target. Yet both these countries have consistently maintained a low inflation low interest rate regime for almost two decades. During the last five years from 2008 to 2013 these two countries have not only posted a better inflation and growth record but also outperformed several inflation targeting countries in terms of level of achievement and variations. The variations in exchange rates GDP growth and interest rates are remarkably high in prominent inflation targeting countries.
Stabilisation of inflation is always an implicit target of any central bank but along with that managing financial stability and exchange variations is equally important. After the 2008-09 financial crisis these aspects of central banking have taken centre-stage.
Structural issues
The monetary framework for India needs to factor in its structural problems. The frictional cost between point of production and consumption which is generally reflected in wide gaps between WPI (proxy of producer price) and CPI is aggravated by increasing interest rates. A high interest rate inhibits growth in potential output by constraining investments in infrastructure storage and modernisation.
Poor and inadequate infrastructure creates supply-side constraints limits growth in productivity and potential output and raises the prices of goods and services. This is likely to be mistaken as the result of excess demand prompting central banks to adopt monetary tightening. For example take the case of construction of roads railways ports and other infrastructure including digital cables electrification hospitals and schools. During the construction phase such investment tends to increase output gap for the current year and may be mistaken as a source of overheating.
Thus in a growing economy which is trying to make up for the infrastructure deficit an inflation targeting central bank will put all the breaks on money supply leading to high costs and deceleration. Such deceleration will create a vicious cycle of supply constraints raising prices further. This may be how India got itself into a high inflation high interest rate regime for some time now.
In fact countries such as China followed policies that motivated huge investment in futuristic infrastructure. They brought down the cost of inputs including the cost of energy and stabilised the economy at low inflation and low interest rate. This has paid huge dividends in terms of sustained growth without overheating. India needs to come out of the inflation targeting syndrome reduce interest rates and take measures to fix supply-side issues.

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