Organised by the
Centre for Public Policy and Governance
GOA INSTITUTE OF MANAGEMENT
Macroeconomic Policy in India Since the Global Financial Crisis - Trends, Policies and Challenges in Economic Revival Post-COVID
By Sebastian Morris, Springer 2022, Singapore
Date : 4th August 2022 at 5.00 PM
Link for participation: https://us06web.zoom.us/j/89307322140?pwd=K1FROUNIZ1N6Zlo0aklUTUdvdkprUT09
Dr. Montek Singh Ahluwalia retired from the Government of India as Deputy Chairman of the Planning Commission. Earlier he was Finance Secretary, Director on the Board of the IMF, Division Chief of the World Bank, and Secretary, Department of Economic Affairs, among the many senior positions he held. He is the principal architect of India’s economic reforms that transformed the economy, and ensured high growth in India. His most recent autobiographical book Backstage presents a ring-side view of economic policy making for nearly 25 years since the early nineties and the actions that gave India its high growth.
Prof. Sudipto Mundle is a Non-resident Senior Fellow at NCAER. Earlier, he was Professor Emeritus at the National Institute of Public Finance and Policy, New Delhi. He was also a member of the Fourteenth Finance Commission, the erstwhile Monetary Policy Advisory Committee of the RBI, and the National Statistical Commission, where he also acted as Chairman. He spent much of his career at the Asian Development Bank, Manila, from where he retired as Director in the Strategy and Policy Department in 2008. His research interests include development economics, macroeconomic policy and modeling, public expenditure policy, and governance.
Dr. R. Nagaraj is Visiting Professor at the Centre for Development Studies (CDS), Trivandrum. Prior to joining CDS, Nagaraj was a Professor of Economics at the Indira Gandhi Institute of Development Research (IGIDR). His areas of research include aspects of India’s industrialisation, applied macroeconomics, public sector performance, the labour market in India, and official economic statistics. His forthcoming edited book titled Industrialisation for Employment and Growth in India: Lessons from Small Firm Clusters and Beyond is being published by Cambridge University Press.
Dr. Sebastian Morris is Senior Professor and Chair of the Centre for Public Policy and Governance at the Goa Institute of Management. Retired from the Indian Institute of Management, Ahmedabad after over 25 years of teaching, research and consultation. His principle interests are the Indian economy, infrastructure development and regulation, the public sector and governance, international trade and investments, macroeconomics, and small industry. He very early argued for East Asian like high speed growth in India. He has a deep interest in the training of senior civil servants.
Sobhesh Agarwalla and Ajay Pandey are Professors in the area of Finance at the Indian Institute of Management, Ahmedabad
Astha Agarwalla is a Professor at the Adani Institute of Infrastructure Management, Ahmedabad.
Kapil Shukla is a freelance researcher and has been a Research Associate at IIMA.
About the Book
The Global Financial Crisis (GFC) did not lead to a reduction in growth in India. Growth, which had reached a level of 9.75% in certain quarters, before the crisis, had marginally slowed down over the last three quarters before the GFC, due to the restrictive monetary policies pursued by the RBI, to quell a supply side inflation a part of which was imported through higher oil prices. Growth nevertheless was at around 8.5% on the eve of the crisis. The RBI during the early part of the crisis delayed its response. However, the government had its fiscal counter action ready and as a result growth did not really fall for the next two years being supported at nearly 9%.
The RBI seeing high inflation in 2011-12 (largely because the CPI was being erroneously computed), acted to dramatically raise interest rates, which brought investments down by nearly 4% points as a share of GDP. This happened when the fiscal stimulus was being withdrawn. Almost until 2018, the RBI kept a hawkish stance. Other actions such as underspending in relation to budgets (which happened during the first two budgets of Modi-I), the early bans by the courts of important activities, the nearly unconditional pursuit of the fiscal deficit targets, significant pull back in MGNREGS spending, demonetization, unwarranted uncertainties imposed on an important industry -automobiles- further contributed to what was to become the longest period of slow growth since the Great Liberalization of the early 90s.
Over a significant part of this period, the policy rates underestimate the effective interest rates since the repo window was not open wide. The financial sector too was under stress due inter alia to the slowdown itself, the delayed response of the government to shore up the net worth of PSU BFSIs (and hence of the pressure on NBFCs), the poor lending practices especially to the infrastructure sector, and to the tightness in credit. Gross Capital Formation rates which had fallen to 30% or lower in 2012- 13 from the high 36% in the "Tiger" period from 2003-04 to 2007-08, continues at that level or lower. Private investment has been the casualty. The recovery as expected varied much across the sectors. Employment in manufacturing is nowhere near the pre-COVID level.
The book raises the need to contextualise standard approaches to macroeconomic policy by recognising the relationship between reforms and potential output. The need for reforms and demand management to cohere is emphasized. The existence of a vast pool of employable idle labour also means that the conventional wisdom of inflation targeting may be an inadequate guide. The onus of high growth is on monetary as well as fiscal policy since the short run has to be consistent with the potential that is created by reforms and structural changes. Policies that remove the biases against the rapid growth in manufacturing and exports would be a crucial aspect going forward.
For any queries contact:
Ms. Bernice de Souza, Senior Research Associate
Ms. Sneha Kanolkar, Secretary CPPG
Prof. Kingshuk Sarkar, Associate Professor