Archives: Publication

As India sets its sights on Viksit Bharat—a vision of becoming a developed and prosperous nation—one crucial factor could determine the success of this ambitious goal: the full and active participation of women in the workforce. Despite the nation’s significant growth since the economic liberalization reforms of 1991, the decline in female labour force participation (FLFP) is a troubling trend that could hinder the realization of Viksit Bharat. To achieve this vision, India must address the underutilization of its female talent urgently.

The statistics paint a concerning picture. Female labor force participation in India dropped from 31.2% in 2005 to just 20.3% in 2019, even as the economy expanded. This paradox threatens to derail India’s progress toward becoming a developed economy. Currently, India ranks 135th out of 146 countries in the World Economic Forum’s Global Gender Gap Report, highlighting the significant work that remains to be done.

A key issue lies in the changing dynamics of India’s economy. Historically, agriculture has employed most women, but female employment in this sector saw an average annual decline of 2.23% between 2011 and 2018. Mechanization and urbanization have displaced women from agricultural roles, yet many have not transitioned to industrial jobs, moving directly into the service sector instead. While the service sector has provided some opportunities, it cannot absorb the large numbers of women exiting agriculture.

The industrial sector, which could have been a vital source of employment for women, has underperformed. Female employment in industry grew at a sluggish 1.58% annually between 1991 and 2022, with a decline of 0.55% from 2012 to 2018. In contrast, female employment in the service sector grew by 2.38% annually over the same period. However, the manufacturing sector’s contribution to India’s GDP has stagnated at around 15%, well below the global average of 27% for emerging economies. This stagnation not only limits economic growth but also restricts viable employment opportunities for women, undermining the vision of Viksit Bharat.

The recent Union Budget 2024-25 provides some hope for addressing these challenges. A significant portion of the budget—around ₹7 lakh crore—has been allocated for infrastructure development, essential for industrial growth and increasing employment opportunities for women. Improved infrastructure could help tackle barriers such as inadequate transportation, which often limits women’s access to industrial jobs. Furthermore, the budget has allocated ₹1.6 lakh crore specifically for women-centric programs, including initiatives like Beti Bachao Beti Padhao, which support girls’ education and lay the groundwork for higher FLFP in the future.

The service sector, despite its growth, presents its own challenges. It often requires higher education and specialized skills, which are not accessible to many Indian women, particularly those from rural or economically disadvantaged backgrounds. In 2020, only 12% of Indian women aged 15 and above had completed secondary education, compared to 22% of men. This educational gap exacerbates the problem, making it difficult for women excluded from both agriculture and industry to find sustainable employment in the service sector.

To address this, the government has earmarked ₹45,000 crore for the Skill India Mission, focusing significantly on training women. This aligns with the need for policies that promote female education and create pathways for women to enter and remain in the workforce across all sectors. Additionally, the healthcare sector, which received a substantial boost with an allocation of ₹2.5 lakh crore, presents high potential for female employment, particularly in nursing and allied health services, supporting the call to expand and diversify the service sector to absorb more female workers.

Education is a critical factor. Women with higher education are significantly more likely to be employed in the service sector. Yet, despite these benefits, only 27% of Indian women hold wage-paying jobs compared to 74% of men. This disparity underscores the urgent need for policies that promote female education and create clear pathways for women to enter and remain in the workforce.

The economic cost of excluding women from the workforce is enormous. The McKinsey Global Institute estimates that closing the gender gap in the labour market could add $770 billion to India’s GDP by 2025. This figure represents the untapped potential of millions of women whose contributions could be crucial to achieving the vision of Viksit Bharat.

Policymakers must rethink their strategies. Investment in female education is essential, but it is equally important to create a conducive environment for women in the industrial sector. This includes addressing barriers such as inadequate infrastructure, restrictive social norms, and the lack of supportive work environments. Moreover, the service sector needs to be expanded and diversified to offer more sustainable and accessible employment opportunities for women.

The stakes for Viksit Bharat could not be higher. India’s large young population can either propel the nation to new heights or become a burden if the potential of its women remains untapped. In a global economy that is increasingly competitive, India cannot afford to overlook the talent and contributions of half its population. The vision of Viksit Bharat demands inclusive growth, where every citizen, regardless of gender, has the opportunity to contribute to and benefit from the nation’s progress.

Souryabrata is a faculty member at NCAER, and Surbhi is a PhD candidate at IIT Bhubaneswar. Views are personal.

Constitutional independence alone is not enough. It must be bolstered with strong public accountability and transparency.

Emerging market regulators face significant challenges in maintaining their credibility when domestic and external entities level allegations against them. The Hindenburg Report’s accusations against the Adani Group and India’s Securities and Exchange Board (SEBI) have thrust the integrity of financial regulators into the spotlight, highlighting the systemic hurdles that regulatory bodies in developing capital markets must overcome.

Without going into the specifics of this particular case, several instances have occurred in emerging markets where financial regulators have been scrutinised. These include Brazil’s Petrobras, South Africa’s Steinhoff, and Türkiye’s Turkcell. In all cases, the actions of financial regulators underwent scrutiny for potential biases influenced by corporate interests and the government’s overarching tactical economic agenda. It became clear that outside pressures only serve to make a bad situation worse. These incidents eroded public trust and necessitated years of reform to rebuild market and investor confidence.

While international firms such as Hindenburg Research are less common in emerging markets, the involvement of foreign shareholders, the global media, analysts, and credit rating agencies has amplified the attention paid to the regulatory environment in these markets. It underscores the international implications of regulatory actions undertaken by emerging market regulators and the need for a prompt and credible response.

In theory, regulatory bodies such as India’s SEBI operate independently, uphold high ethical standards, and resist undue influence. Their mission is to promote transparency and ensure fair play. But regulators sometimes find themselves trapped in the systems they oversee, serving the industry or political entities they should regulate rather than the public interest. International financial standard-setting bodies and the International Monetary Fund, as well as policy lessons from rounds of financial crisis, have strongly stressed good supervision and robust regulator governance as critical components of a stable financial system.

It is not as if advanced market economies have not experienced regulatory governance scandals. The United Kingdom (UK)’s Financial Conduct Authority (FCA) was severely criticised during the London Interbank Offered Rate (LIBOR) scandal for failing to prevent interest rate manipulation; similarly, despite numerous red flags, the Securities and Exchange Commission (SEC) in the United States faced intense scrutiny for its failure to detect Bernie Madoff’s ponzi scheme, and Germany’s financial regulator, BaFin, faced harsh criticism during the Wirecard scandal. In all instances, significant reforms to the framework governing the regulator ensued.

These demonstrate that regulatory bodies worldwide can face similar challenges in avoiding conflicts of interest, regulatory capture, and fairly and effectively policing financial markets. How the regulators react considerably depends upon the standards that govern the regulator itself.

The fortification of governance frameworks for regulators in emerging markets is paramount. One potential strategy involves constitutionally ensuring the independence of financial regulators, as Mexico has done with its central bank and other countries who have moved towards granting institutional independence to their regulators outside the executive and legislative branches of government.

Constitutional independence alone is not enough. Independence must be bolstered with mechanisms that will guarantee strong public accountability, and transparency. The role of stakeholders and whistle-blowers must be stepped up as a check and balance on regulatory governance standards allowing the reporting of unethical practices without fear of retaliation.

The following mechanisms could instill market confidence that financial regulators are operating under an accountable system of their own oversight.

One is parliamentary scrutiny (such as in the UK), where the parliament holds regulators accountable. Two, judicial review (such as in Brazil), where regulators operate within their legal mandates and the judiciary has a role in reviewing regulatory decisions. Third is active public engagement and transparency, through public consultations and transparent decision-making processes. Fourth, public disclosure of decisions and rationale where regulators regularly publish detailed and timely reports on regulatory actions. And five, engagement with stakeholders, where regulators foster open communication channels with market participants, investors, and the public to build trust and allow for feedback.

The design of the above mechanisms will be conditioned by the countries’ political culture, institutional context, and risk tolerance (in several markets, the highest importance is placed on reputational risk). Doing this is challenging in markets where political and economic institutions are weak, afflicted by State dominance, or are outmoded and in need of modernisation.

A relatively new element coming in the way of regulatory governance is the evolving financial landscape. The rapid pace of change in financial markets, the entry of new providers of financial services, and shifts in business practices, are increasing the complexity of regulatory mandates and generating new types of conflicts of interest and posing risks to a regulator’s integrity. As the economist and Nobel laureate George Stigler once said, agencies tend to respond to the wishes of the best-organised interest groups.

For SEBI, this means overcoming the public trust deficit and demonstrating its commitment to transparency and fairness. The situation with Adani and Hindenburg is special due to its international dimension. Swiftness and decisiveness are essential when a regulator like SEBI gets embroiled in a controversy or when foreign investors question its governance and integrity.

The response can take five forms. First, the regulator launches independent governance audits, makes findings public, and implements necessary reforms swiftly. Two, governments publicly reaffirm the regulator’s governance framework and independence when its credibility is threatened. Third, regulators are backed by the judiciary and legislature, particularly in contentious cases, for maintaining their governance integrity. Fourth, the regulator provides the public clear, factual, and timely information to address accusations. Fifth, regulators plan for potential crises and be prepared to respond to adverse spill-overs arising from the allegations.

The involvement of Hindenburg Research, known for its activism and short-selling strategies, is influenced by the practices followed in well-developed and internationally connected markets. Until now, such involvement was less evident in emerging markets. This was primarily due to the smaller size of companies and markets, lower levels of interconnectedness, and regulatory frameworks with a domestic bias. However, as the cross-border connections of India’s corporate and financial firms grow, and the Indian financial and capital markets integrate more with the global financial system, the likelihood of involvement of firms like Hindenburg Research will rise.

The allegations against SEBI are a stark reminder that financial regulators often are left alone to defend themselves. But, these also help regulators anticipate complex challenges. Emerging markets must construct resilient regulatory governance frameworks and put safeguards in place for regulators to act independently against the forces they oversee.

UdaiBir Das is formerly from the International Monetary Fund and currently affiliated with NCAER, and Kautilya School of Public Policy. The views expressed are personal.

The World Bank’s measure of extreme poverty, at $2.15 a day, represents a level of deprivation that is rarely seen in the West. At this income, hunger or its shadow is an inescapable feature of life. Estimates suggest that over half the children born to poor families are undernourished. One could argue that even a small material improvement for a family living in such dire circumstances adds more to the sum of human welfare than big gains for the more fortunate.

One of humanity’s greatest achievements over the past half century has been its striking progress in reducing poverty. The share of the global population living under the poverty line fell to under 10 percent in 2021 from well over 40 percent in 1981, with much of the reduction coming from just two countries: China and India. The decline was so unexpectedly rapid that a United Nations goal of halving global poverty was achieved five years early. The improvement has also led to a more equitable distribution of global income, with developing countries accounting for a sharply rising share of world G.D.P.

International trade was indispensable to these gains. In the late 1970s and mid-1980s, China and India increasingly opened up their economies to the world. And many other countries prospered by using trade as a ladder of development, including the East Asian “Tigers” earlier in the 20th century.

All this is imperiled now that Western countries are turning increasingly protectionist. On both sides of the Atlantic, and both sides of the aisle in Congress, the idea has gained currency that trade with less affluent countries costs jobs and lowers wages. This kind of zero-sum thinking would sharply curtail development opportunities for countries with living standards far below those in the West.

Through its powerful link to economic growth, international trade has long been a scourge of global poverty. Developing countries that liberalized their trade regimes and integrated with the world economy — call them “globalizers” — have vastly outperformed the non-globalizers over the past four decades. The globalizers have also grown much faster than rich countries, allowing them to gradually reduce the still yawning per capita income gap with the West.

China and India have been among the world’s fastest-growing economies since the 1980s, together lifting an astonishing 1.1 billion people out of absolute poverty. Trade liberalization lay at the heart of both countries’ economic reforms, with the ratio of trade to G.D.P. soaring after liberalization. They reforms included tariff reductions, the elimination of licensing requirements and import monopolies, and greater exchange rate flexibility. Combined with a multitude of domestic policy changes, they unleashed the dynamism of local entrepreneurs. Businesses had much easier access to foreign ideas, capital and markets. At the same time, greater domestic competition, including competition from imports and from newly established subsidiaries of foreign companies, weeded out inefficient businesses and spurred brisk productivity growth.

The blueprint is widespread. The electronics giant Samsung produces more than a third of its mobile phones in Vietnam. Even against the backdrop of rapid growth for the country as a whole, two provinces, Thai Nguyen and Bac Ninh, stand out for achieving particularly steep reductions in poverty. They are the provinces where the phones are manufactured. Similar evidence emerges from Mexico, where municipalities with a greater concentration of workers employed by internationally linked companies experienced larger declines in poverty and improved access to basic goods such as food, health care and education.

Being connected to supply chains helps local businesses prosper. Not only do they get access to cutting-edge technology, they also develop valuable long-term relationships and learn how to navigate international markets. Their demand for inputs and raw materials helps create a vibrant local ecosystem. The World Bank estimates that a 1 percent increase in participation in international supply chains is accompanied by a more than 1 percent increase in per capita income.

Trade also tends to reduce gender-related disparities by creating more jobs for women, often generously compensated by local standards. Export-oriented businesses in developing countries hire more women than companies that produce solely for the domestic market. New jobs in the services export sector are disproportionately staffed by women. Call centers in Delhi and Mumbai alone employ about one million mostly female workers. In Bangladesh, villages with more exposure to the garments export industry — whose work force is overwhelmingly female — saw a significant drop in teenage marriages and pregnancies, and young girls in those villages gained an average of 1.5 additional years of early schooling.

These gains stand at enormous, and needless, risk today. Donald Trump has promised to institute tariffs of 10 percent to 20 percent on almost all imports into the United States and a 60 percent tariff on all Chinese goods. Among Democrats, the anti-trade fervor is more muted, but hardly absent. Far from fully reversing the previous Trump tariffs on steel and aluminum, the Biden administration has recently added to them. And while its signature Inflation Reduction Act has laudable goals, it is laden with requirements penalizing the buying of goods from abroad, even if they are less expensive and better than the domestic equivalent. Around the world, trade restrictions have risen explosively, with the number of protectionist measures imposed in 2022 more than 10 times as large as those imposed a decade earlier.

Higher tariffs designed to protect jobs in affluent countries have been amply documented as simultaneously regressive and futile. They are regressive because low-income households disproportionately consume goods that are traded, such as televisions and groceries, which tariffs make more expensive, while more affluent consumers tend to purchase a higher share of non-tradeable services, such as therapy and restaurant meals. They are futile because the jobs they save, if any, are generally outnumbered by the job losses they cause in other sectors of the economy.

That said, the true price of the backlash against trade will not be paid by rich countries, which are, after all, already rich. The best case for preserving the liberal trade order comes from those countries that are not so fortunate.

The most important, and least discussed, consequence of rising protectionist barriers is that low-income countries will find it more difficult to employ trade as an engine of growth. This would diminish the material prospects of the world’s poorest people and slow the rate at which generations of children can expect to escape the kind of life-stunting deprivation that is no more than a fading memory in the West. If international trade were to shrivel under the assault of populist passions and muddled analysis, that would be unfortunate indeed for rich countries. For the vastly more populous remainder of the world, it would be a tragedy.

Shekhar Aiyar is a visiting scholar at Johns Hopkins School of Advanced International Studies, a nonresident fellow at Bruegel, a think tank, and a visiting professor at India’s National Council of Applied Economic Research. He is currently writing a book titled, “A Defense of the Liberal Economic Order: From a Not-Entirely-Western Perspective.”

Expanding the RBI’s mandate or shifting to a discretionary regime could undermine stability and prove counterproductive.

India adopted inflation targeting (IT) in September 2016. The government announced a 4 per cent Consumer Price Index (CPI) headline inflation target, within an upper limit of 6 per cent and a lower limit of 2 per cent. The inflation target and band are revisited every five years. The government constituted a six-member Monetary Policy Committee (MPC), consisting of three ex officio members from the Reserve Bank of India and three external members. The first MPC completed its term four years ago, and in September this year, a second MPC will complete its term.

For most part, IT has been successful.  Inflation has declined, both compared to previous years and relative to other countries. Both CPI headline and core inflation have become less volatile. The transmission of policy has improved. Expectations of inflation have declined, indicating better anchoring.

IT has not caused the RBI to become overly hawkish or reactive to every deviation in inflation from its 4 per cent target. Since September 2016, the RBI has changed the key policy rate 17 times, the majority of them during 2019-20 and 2002-23. In the remaining six years, the policy rate was adjusted only about once per year. In contrast, the RBI changed the policy rate 24 times in the eight years prior to adopting IT.

Should the government then pay heed to the calls for modifying the approach to inflation targeting?

Broadening the Mandate?

Critics have opined that the RBI’s mandate to maintain price stability while also “keeping in mind the objective of economic growth” should be broadened to encompass other goals. Some say that the growth objective should be elevated so that it has parity with the price stability objective, similar to the US Federal Reserve’s dual mandate. Others have argued that the RBI’s mandate should be expanded to include the responsibility for developing the corporate bond market and the promotion of green finance.

In our view, giving too many responsibilities to the central bank risks diverting senior personnel’s time and focus from their primary duty of achieving price stability. It can overload and distort the conduct of interest rate policy and destabilise inflation expectations.  A more complex mandate hinders central bank accountability by making it harder to evaluate its actions relative to its objectives.

Is Headline CPI Still Relevant?

Some have suggested that headline inflation is an inappropriate target, on the grounds that food prices are volatile, and focusing on them distorts the conduct of policy. They recommend that the RBI should disregard movements in food price inflation.

Our analysis indicates that food-price inflation feeds through to core inflation as producers mark up the prices of other products, and should not be disregarded. This is not to argue that the central bank should react to every movement in headline and food inflation. But neglecting food price inflation that diverges from target for an extended period can have adverse consequences.

Should the Consumption Basket be Updated?

The current basket accords a weight of 45.8 per cent to food and beverages. The basket has not been revised since 2011-12, even though per capita incomes have nearly doubled during this period.

The share of food in consumption declines as income levels rise. For example,  a Bangladeshi spends 45 per cent on food, a Vietnamese spends 33 per cent; a Brazilian 24 per cent; and a South Korean spends only 14 per cent.

Our estimates suggest that the correct weight of food for India would be closer to 40 per cent. It would likely decline to around 30 per cent over the next decade, due to the projected increase in per capita income levels. This correction itself should ameliorate concerns on account of food inflation being part of the inflation target.

Is a 4 Per cent Midpoint Still Appropriate?

Other inflation-targeting emerging markets have reduced their point target for inflation as they gained experience with the regime and inflation came down. Compared to these other emerging markets, the RBI’s point target of 4 per cent is high.  However, India is also a lower-income, faster-growing catch-up economy. Thus, a 4 per cent target is more appropriate for India.

But raising the target midpoint to, say, 6 or 8 per cent would not be a good idea either. A higher inflation target will adversely impact investment sentiment, will be regressive, will rebuild inflationary expectations  and will erode the credibility of the RBI.

Should the Tolerance Band be Narrowed?

The RBI’s tolerance band of +/-2 per cent is wide by emerging market standards.  It might be argued that allowing for relatively wide fluctuations of inflation weakens the anchoring effects of the regime and amplifies the volatility of expectations.

The fact that inflation in India is heavily weighted towards volatile food-price inflation militates against adopting a narrower tolerance band.  In addition, if the world is now entering a period of heightened economic and financial volatility, keeping inflation within a narrow band will become more challenging and require wider, more frequent swings in interest rates. Such variations would create a less predictable climate for investment, posing challenges for economic growth.

Should Inflation Targeting be Abandoned?

Monetary policy must be organised around a nominal anchor, whether it be an inflation target, an exchange rate target, a target for the growth rate of monetary aggregates, or another benchmark.  Inflation targeting has a better track record than these other options.  In contrast to other monetary regimes, no country that adopted an inflation targeting regime has abandoned it subsequently.

Radical changes such as broadening the RBI’s mandate or abandoning the target in favour of a more discretionary regime would be risky and counterproductive.  The regime can be tweaked to improve performance: The weight of food-price inflation in the CPI inflation basket should be reduced to better reflect the circumstances of Indian households, for example. Suitably updated, the current inflation targeting regime should remain the framework for the country’s monetary policy for the foreseeable future.

The writers are respectively, professor of economics and political science at the University of California, Berkeley, and Director General of NCAER. Views are personal.