Some interesting papers relevant for Indian economic policy

Impact of fiscal policy shocks on the Indian economy

Date:	2010-12
By:	Yadav, Swati Upadhyaya, V Sharma, Seema
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:34071&r=ifn
	Impact of Fiscal Policy Shocks on the Indian Economy Swati Yadav , V.Upadhyay , Seema Sharma Abstract In this paper, we analyse the impact of fiscal shocks on the Indian economy using structural vector autoregression (SVAR) methodology. The study uses quarterly data for the period 1997Q1 to 2009Q2. Two different identification schemes have been used to assess the effects of shocks to government spending and tax revenues on output. The recursive scheme is based on the Cholesky decomposition and the second identification scheme Blanchard & Perrotti (1999) technique of using information on tax system to identify the SVAR model. We find that the impulse responses obtained from both identification schemes behave in a similar fashion but the value of multipliers differs. Also the shock to tax variable has a bigger impact on GDP than the government spending shock. In the extended four variable VAR model the effects of fiscal shocks on private consumption has been assessed using the recursive identification scheme. Findings indicate that the tax variable has larger impact on private consumption as compared to the government spending variable. In the short run the impact of expansionary fiscal shocks follow Keynesian tradition but the long run response is mixed.
Keywords:	SVAR; Fiscal shocks; Multipliers
JEL:	E12

Roaring Food Prices in India

Date:	2011-10-09
By:	Mukherjee, Soumyatanu
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:34009&r=ifn
	In this paper, we try to analyze the possible reasons behind food price hike. The motivation of doing this project is to see the probable reasons, which impact “common people” of India to the utmost extent. We concentrate mainly on the supply side, distribution aspects and the demand side. Checking these aspects we try to see their sensitivity in food prices.
Keywords:	Wholesale Price Index; Food grain prices; Public investment; Grain orientation; Public Distribution System; Wholesale and retail prices; Per capita net availability of food grains; Durbin-Watson ‘d’ test; augmented Dicky-Fullar(ADF)test; NREGA
JEL:	C32

An Economic policy and legal analysis of the Micro Finance Institutions (Development & Regulation) Bill, 2011

Date:	2011-10
By:	Shubho Roy (Indira Gandhi Institute of Development Research) Renuka Sane (Indira Gandhi Institute of Development Research) Susan Thomas (Indira Gandhi Institute of Development Research)
URL:	http://d.repec.org/n?u=RePEc:ind:igiwpp:2011-025&r=ifn
	In response to the Second Micro Finance Crisis in Andhra Pradesh, which took place in October 2010, the Ministry of Finance has pro- posed a new Micro Finance Institutions (Development & Regulation) Bill. This paper undertakes a detailed analysis of the draft Bill in terms of both economic policy and law. This analysis reveals many weak links, including: a lack of clarity on the objectives of the Bill; an insufficient focus on protection of the rights of the micro-borrower; lack of clarity about the definition of thrift; the loss of accountability that comes with multiple regulatory agencies; concerns about the rule of law; and constitutional issues about powers of the Centre versus the State Government.
Keywords:	microfinance, regulation, crisis resolution, consumer credit, consumer protection, regulatory objectives
JEL:	G20

Knowledge Flows and Capability Building in the Indian IT Sector: A Comparative Analysis of Cluster and Non-Cluster Locations

By:	Basant, Rakesh Chandra, Pankaj Upadhyayula Rajesh
URL:	http://d.repec.org/n?u=RePEc:iim:iimawp:10677&r=ifn
	The role of industrial clusters in the industrialization of many emerging economies continues to dominate the debate among policy makers and researchers worldwide. While recent discussions on this debate have focused on knowledge spillovers among participants within clusters, knowledge flows between non local networks and the cluster actors have not been accorded due attention in the literature. Further, the literature does not compare the relative impact of knowledge flows among firms within clusters and firms outside clusters. In this study, we attempt a comparative analysis of the role of knowledge flows in capability formation among firms in the Indian Information Technology sector (IT sector) across cluster and non-cluster locations. The empirical results suggest that at the firm level, leveraging of capabilities to enhance performance and networks to build capabilities is not automatic; structural features of the firms’ location enable this transformation. Moreover, while capabilities affect performance of firms positively only in clusters, economies of scale and some strategies like quality certification used by firms impact performance of firms outside clusters. Interestingly, although economies of scale do not impact the performance of firms within clusters, they do, however affect the capability formation of firms within clusters only. Further, we found that local and national non-customer networks affect capability formation of firms within and outside clusters whereas international customer networks affect capability formation of firms within clusters only. These have implications for how firms can develop appropriate strategies to enhance their performance.
Keywords:	Industrial Clustering, Information Technology industry, Networks, Capabilities

Complementing Bagehot: Illiquidity and insolvency resolution

Date:	2011-10
By:	Eijffinger, Sylvester C W Nijskens, Rob
URL:	http://d.repec.org/n?u=RePEc:cpr:ceprdp:8603&r=ifn
	During the recent financial crisis, central banks have provided liquidity and governments have set up rescue programmes to restore confidence and stability, often against the LLR principle advocated by Bagehot. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity and monitors too little. A central bank can alleviate the liquidity problem, but induces moral hazard. Therefore, we introduce an additional authority that is able to bail out the bank either by injecting capital at a fixed return or by receiving an equity claim. This authority faces a trade-off: demanding a fixed premium increases investment but worsens moral hazard. Request for an equity claim by the fiscal authority reduces excessive risk taking at the expense of investment. This resembles the current situation on financial markets, in which banks take less risk but also provide less credit to the economy
Keywords:	Bailout; Bank Regulation; Capital; Lender of Last Resort; Liquidity
JEL:	E58

Spatial Determinants of Entrepreneurship in India

Date:	2011-10
By:	Ejaz Ghani William R. Kerr Stephen D. O'Connell
URL:	http://d.repec.org/n?u=RePEc:nbr:nberwo:17514&r=ifn
	We analyze the spatial determinants of entrepreneurship in India in the manufacturing and services sectors. Among general district traits, quality of physical infrastructure and workforce education are the strongest predictors of entry, with labor laws and household banking quality also playing important roles. Looking at the district-industry level, we find extensive evidence of agglomeration economies among manufacturing industries. In particular, supportive incumbent industrial structures for input and output markets are strongly linked to higher establishment entry rates. We also find substantial evidence for the Chinitz effect where small local incumbent suppliers encourage entry. The importance of agglomeration economies for entry hold when considering changes in India’s incumbent industry structures from 1989, determined before large-scale deregulation began, to 2005.
JEL:	L10

What does financial volatility tell us about macroeconomic fluctuations?

Date:	2010-10
By:	Chauvet, Marcelle Senyuz, Zeynep Yoldas, Emre
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:34104&r=ifn
	This paper provides an extensive analysis of the predictive ability of financial volatility measures for economic activity. We construct monthly measures of aggregated and industry-level stock volatility, and bond market volatility from daily returns. We model log financial volatility as composed of a long-run component that is common across all series, and a short-run component. If volatility has components, volatility proxies are characterized by large measurement error, which veils analysis of their fundamental information and relationship with the economy. We find that there are substantial gains from using the long term component of the volatility measures for linearly projecting future economic activity, as well as for forecasting business cycle turning points. When we allow for asymmetry in the long-run volatility component, we find that it provides early signals of upcoming recessions. In a real-time out-of-sample analysis of the last recession, we find that these signals are concomitant with the first signs of distress in the financial markets due to problems in the housing sector around mid-2007 and the implied chronology is consistent with the crisis timeline.
Keywords:	Realized Volatility; Business Cycles; Forecasting; Dynamic Factor Models; Markov Switching
JEL:	C32