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AIEFS is a non-profit academic organization founded in 1975 at Bloomsburg State University, Pennsylvania
Volume 6 Issue 2 Association Objectives Promote interest in the study of Indian Economics & Finance Encourage inquiry into, and analysis of the problems facing the Indian economy Facilitate communication and discussion among Scholars
Executive Director
Chandana Chakraborty Montclair State University Assistant Executive Director Meenakshi Rishi Seattle University
Treasurer
Artatrana Ratha St. Cloud State University
Elected Members
Kalyan Chakraborty Emporia State University Shailendra Gajanan University of PittsburghBradford Jyoti Khanna Colgate University Sushanta Mallick Queen Mary Univ. London Artatrana Ratha St. Cloud State University Bansi Sawhney University of Baltimore
Ex-officio Member
Kusum Ketkar
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125
indicating a sharp fall in the investment activity. Services sector recorded the lowest growth in 11 years at 6.8 per cent during 2012-13. The fiscal situation is also grim (Table 2). Other than collections from custom duties, growth in gross tax revenue has been lower under major heads, as would be expected in a slow growing economy. Widening of revenue deficit together with higher capital expenditure has added to the gross fiscal deficit, inducing risk of fiscal slippage. Fiscal slippage is apparent but given that governments' borrowing costs are lower than last year despite rise in average maturity, fiscal profligacy is anticipated in the election year. External sector vulnerabilities also got highlighted in 2012-13. Indias balance of payments has been under growing pressure as noted in widening of Current Account Deficit (CAD). In the on-going situation, CAD reached a historic peak of 4.8 per cent of GDP in 2012-13 and widened from 3.6 per cent of GDP in Q4 (2012-13) to 4.9 per cent of GDP in Q1 (2013-14). To contain CAD, the government and the RBI have taken stringent measures, especially to restrict import of gold. In Q1 of 2013-14, the external debt as a ratio to GDP increased and the reserve adequacy indicators deteriorated (Table 3). The currency experienced increased volatility during the recent period. Sudden surge in capital outflows at the back of the likelihood of tapering of the US Fed Reserves quantitative easing programme lead to a sharp depreciation of the Indian Rupee. Between mid-May and end-August 2013, the rupee depreciated rapidly by 17.7 per cent against the US dollar. Improvements in global sentiments have helped in reversing this trend in early September, and the rupee appreciated by 6.0 per cent and further by 1.9 per cent up to October 25, 2013. However, policy makers understand that any relief due to postponement of tapering by the Fed Reserve is only procrastination and not a permanent respite. Inflationary pressures are raising their head in India. Wholesale Price Index (WPI) inflation declined to 4.6 per cent in May 2013. However, due to a rise in food and fuel prices, the WPI again rose to 6.5 per cent in September 2013. Vegetable prices were the driving force within the food articles. Further, depreciation of the rupee along with rise in crude oil prices brought about a rebound of fuel inflation. Inflation measured by Consumer Price Index (CPI) continued to stay near double-digit levels, mainly driven by high food inflation. To anchor inflation, the repo rate has been raised twice within a period of last six weeks, intensifying the war with inflation. But will it lead to expected results? Not 2
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125
likely because the main culprit in this episode of inflation is select list of food items and not just the demand pressures that the monetary policy is seeking to address. Rather, the rise in interest rates may not yield higher deposits either as only few save through the banking channel while others save in gold and real estate, especially when economic uncertainty is high and black economy is flourishing. And if global sentiments change, capital outflows would still occur because of prevailing economic environment. Thus, hike in interest rates will only further stifle growth, resulting in higher unemployment. Traditionally, any responsible central bank, to safeguard the interests of citizens, would tighten the monetary policy when fiscal profligacy, especially during the election year, is noted. But if it impinges on growth and unemployment -other two objectives of monetary policy - then probably the monetary stance needs to be boldly revisited and not considered through traditional lens. Table 1: Sector-Wise Growth Rates of GDP (2004-05 prices)
(Per cent)
2011-12 1. Agriculture, forestry & fishing 2. Industry Mining and quarrying Manufacturing Electricity, gas and water supply 3. Services Trade, hotels, transport and communication Financing, insurance, real estate and business services Community, social and personal services Construction 4. GDP at factor cost Source: RBI 6.0 5.6 6.2 11.7 7.0 3.6 2.7 -0.6 2.7 6.5 7.9
2012-13 1.9 1.2 -0.6 1.0 4.2 6.8 6.4 8.6 6.6 4.3 5.0
2012-13 (Q1) 2.9 -0.2 0.4 -1.0 6.2 7.6 6.1 9.3 8.9 7.0 5.4
2013-14 (Q1) 2.7 -0.9 -2.8 -1.2 3.7 6.2 3.9 8.9 9.4 2.8 4.4
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125
Indicator Ratio of Total Debt to GDP Ratio of Short-term to Total Debt (Residual Maturity) Ratio of Reserves to Total Debt Ratio of Short-term Debt to Reserves (Residual Maturity) Reserves Cover of Imports (in months) External Debt (US$ billion) Source: RBI
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125
Discussants: Keshab Bhattarai, University of Hull Sweta Saxena, International Monetary Fund Banani Nandi, Shannon Laboratories and AT&T Jyoti Khanna, Colgate University Valerie Cerra, International Monetary Fund Ramya Ghosh, Drexel University January 03, 2014 2:30pm, Philadelphia Marriott, Meeting Room 310
Discussants:
Shailendra Gajanan, University of Pittsburgh-Bradford Bansi Sawhney, University of Baltimore Anusua Datta, Philadelphia University Manas Chatterjee, Binghamton University Nabamita Dutta, University of Wisconsin Chaitram Talele, Columbia State College *Note: So far this is the final program. Session details may differ from the ASSA Published Program
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125
About AIEFS
AIEFS is a non-profit academic organization founded in 1975 at Bloomsburg State University, Pennsylvania. Economists with interest in India felt a need to develop an identity for those involved in scholarly research on Indian economic and financial issues, to give publicity to their research outcomes and to educate the world at large on the realities of changing India. AIEFS objectives are to promote interest of the study of Indian Economics and Finance in its broadest sense, to encourage inquiry into, and analysis of the problems and issues facing the Indian economy and to facilitate communication and discussion among scholars working towards the above objectives. AIEFS sponsors sessions at the annual ASSA, Western Economic Association and Eastern Economic Association Meetings. It also holds biennial meetings either in the US or India. First biennial meeting in India was held in collaboration with Research and Information System for Developing countries (RIS) in June 2011 In Delhi. The second biennial meeting was held in collaboration with the Indira Gandhi Institute of Developments Research (IGIDR), Mumbai, in August 2013. AIEFS brings out Newlester twice a year fall and in spring. From time to time, AIEFS also publishes edited books or proceeding of papers presented at ASSA and biennieal meetings. In recent years, papers have been published in special issues of peer reviewed journals like South Asia Economic Journal, International Journal of Economic Policy in Emerging Economies, and International Journal of Business and Emerging Markets.
For futher information of AIEFS or to become a member, please visit the website: www.aiefs.org. Or contact executive director: Professor Chandana Chakraborty chakrabortyc@mail.montclair.edu. For Website related questions, please contact the Webmaster: Natalie Ratha nratha@gmail.com
http://www.aeaweb.org/Annual_Meeting/index.php
AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125