India and the World Economy
(Section E)
Instructor
Sudip Chaudhuri
Room B-207; Ext 185
1
India and the World Economy
Economics I and II:
Microeconomics
Macroeconomics
Economics III:
Course objective: analyze economic problems
of India in the context of the ongoing process
of globalization
2
Some Current Major Economic Issues
Slowing down of GDP
BOP difficulties
Inflation
Foreign exchange rate
Fiscal deficit
Foreign investment
Sensex
Lack of inclusive growth
3
Fundamentally important
Sustained economic growth (GDP growth)
Create jobs, reduce poverty
Avoid crises:
Recession/depression
Inflation:
Foreign exchange crisis
Year
1000
1500
1600
1700
1820
1850
1870
1890
1900
1913
1930
1950
1980
1990
2008
United States
400
400
400
527
1,257
1,806
2,445
3,392
4,091
5,301
6,213
9,561
18,577
23,201
31,178
China
466
600
600
600
600
600
530
540
545
552
568
448
1,061
1,871
6,725
India
450
550
550
550
533
533
533
584
599
673
726
619
938
1,309
2,975
[Link]
Per capita GDP
(International $ 1990)
Per capita GDP
35,000
1990 international $
30,000
25,000
20,000
15,000
10,000
5,000
0
1000
1600
1820
United States
1870
1900
China
1930
1980
2008
India
6
Economic Policy
Inherent tension
Impact different for different people
Consciously (or not) policies favour
particular groups against others
Example: fiscal deficit
Reducing subsidies for poor
Reducing government expenditure
Increasing taxes from rich
7
Lecture Topics
1. Introduction: Context and policy background
2. An analytical framework to understand growth and crisis
3. Growth and crises in Indian economy before 1991
4. Economic performance after reforms
5. RBI, monetary policy and demand management
6. Fiscal reforms and fiscal deficit
7. Trade and Industrial reforms and manufacturing performance
8. Unemployment, poverty and inequality
Readings
All uploaded in Course web
(Also: Collect Hardcopy)
Topic 1
Topic 2
Ahluwalia and Nayyar
Financing economic development
Topic 4
Nagaraj; Rangarajan-Mishra; Ghose
Topic 5
Subbarao
Topic 6
Bhaduri
Topic 7
Chaudhuri
Attempt has been made to give you a flavour of writings of
Economists of different persuasion
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Examination
Closed book One hour End-term examination:
Lecture PPTs
Class discussions
Readings recommended
Opinions must have factual and logical basis:
Different readings may have different approaches
Separate question papers Sections (A & B),
Sections (C & D), Section E and Section F.
Grades to be normalized
10
Grade normalization target
A plus: 10% of the students
A only: 15%
A minus: 15%
B plus: 25%
B only: 15%
B minus: 10%
C plus/F: 10%
Note: Actual distribution may vary across sections
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Lectures
PPTs in course web
Discussions in class room:
PPTs uploaded are not substitutes for class
lectures
Apart from class rooms, students may ask
questions through email (sudip@[Link])
Discussion sessions 2nd week onwards?
Clarifications:
Most welcome to meet me in my office room
on Wednesdays and Fridays
12
13
GNI per capita, 2012, $ PPP
India
3,285
China
7,945
Brazil
10,152
Malaysia
13,676
Russia
14,461
South Korea
28,231
USA
43,480
0
10,000
20,000
30,000
40,000
50,000
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Indias Distinctiveness
Low per capita income
But:
Huge size (10th largest, 3rd largest in PPP in
2012)
Relatively high growth rate (but low
agriculture growth rate)
High investment/savings rate
Diversified industrial structure
Imbalance: employment, income and capital
stock
Foreign exchange reserves
15
Diversified industrial structure
IT and IT enabled services
Pharmaceuticals
Auto-components
Electrical equipment
Etc
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Imbalance
More of 50% of employment in Agriculture
More than 50% of domestic product from
Services
More than 50% of fixed capital stock in
Industry
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1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
$ billion
Foreign Exchange Reserves
350
300
250
200
150
100
50
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India: Major Issues of Concern
More than 50% of population depend on agriculture but
low growth rate
Jobs in organized sector have not increased despite
industrial and service sector growth
Inter-state disparity
Poverty has declined but at modest rate
Malnutrition has decreased but magnitude still very high
Poor health, education, clean drinking water, sanitation
very low HDI
19
Some useful sources of data
UNDP: [Link]
[Link]
[Link]
RBI, Handbook of Statistics on Indian Economy
([Link])
Min of Finance, Economic Survey:
[Link]
[Link]
CSO: [Link]
IIMC Library: e-resources:
CMIE Business Beacon, EIS, India Trades, Prowess etc
World Bank, World Development Indicators
[Link]
20
Economic Strategy
What Policies do developing countries
adopt for economic development?
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Choices
Government regulation/market forces
Domestic production/Imports
Production for home market/exports
Public sector/private sector
Indigenous enterprise/MNC
22
Regime Changes
After the Second world war till 1970s
Emphasis on role for government (wrongly
referred to as socialism)
Since 1980s, particularly 1990s
Economic Reforms (critics: neo-liberalism;
market fundamentalism)
Recently
Again some re-thinking
23
Before 1980s
Background
Great Depression
Keynesian Revolution
Independence of
colonies
Marshal Plan
Policies
Government
regulation
Import substitution
Public sector
Planning
24
But ?
Per Capital GDP Growth rate, 1960-1980
25
Since 1980s
Background
Most Developing
countries:
Poor economic record
Crises in 1980s
Policies
Emergence of the
Washington Consensus:
De-regulation
Import liberalization
Private sector
Market forces
26
Bretton Woods Institutions
International Monetary Fund (IMF)
World Bank
General Agreement on Tariffs and Trade
(GATT)
27
IMF and World Bank
All members: BOP
difficulties
Quota
subscriptions
(partly in hard
currencies/gold
and mainly own
currencies)
IBRD (only
developing countries:
for projects/
programmes)
IDA: very poor
countries - interest
free loans
IBRD: market
borrowings by bonds
issue (AAA rating)
IDA gets its funds
mainly from donor
country grants
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World Trade Organization
Established in 1995 as a result of the
Uruguay Round multilateral trade
negotiations (1986-94)
GATT as an organization replaced by
WTO and GATT became one of the
agreements of WTO with a larger scope
29
Governance structure
IMF/World Bank
Voting power depends on economic size
(USA with > 15% votes: veto power)
Five rich countries permanent members of the
Executive Board
WTO:
One country one vote
30
Washington Consensus
(Coined in 1989 initially for Latin America)
1. Fiscal discipline
2. Reorientation of public expenditures
3. Tax reform
4. Financial liberalization
5. Unified and competitive exchange rate
6. Trade liberalization
7. Openness to foreign direct investment
8. Privatization
9. Deregulation
10. Secure property rights
31
Augmented Washington Consensus
Corporate governance
Flexible labour markets
Social safety nets
WTO agreements
Etc
32
Planning and Reforms in India
1951 to mid 1960s
(Nehru)
Planning strategy
Mid-1960s to mid-1980s
(Indira Gandhi)
External and internal shocks
Initiation of Liberalization of
import and industrial licensing:
substantial expansion
limits of units
regularizing excess capacity
But also:
FERA/MRTP
Banks, insurance, oil and
coal nationalized
Distribution and price
controls
33
Planning and Reforms in India
Mid-1980s to 1991
(Rajiv Gandhi)
Liberalization broadbanding etc
MRTP limit
1991 onwards
(Manmohan Singh?)
New economic strategy
reforms not ad hoc
34
Economic Reforms in India
Financial sector reforms:
Reforms in the Banking Sector
Reforms in the Foreign Exchange Market
Reforms in the Government Securities Market
Reforms in the Monetary Policy Framework
External sector reforms
Fiscal reforms
Trade and Industrial reforms
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Banking Sector Reforms
Prudential Measures
capital adequacy requirement, accounting,
income recognition, provisioning and
exposure etc.
Competition Enhancing Measures
Reduction of public ownership in public sector
banks
Entry of private banks
36
Banking Sector Reforms
Measures Enhancing Role of Market
Forces
Sharp reduction in reserve requirements
(CRR and SLR),
Market determined pricing for government
securities,
Disbanding of administered interest rates with
a few exceptions
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