Category: Macroeconomy

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Defining the frontier sector

The new normal after Covid-19 requires a re-imagining of macroeconomics: we need to start defining the contours of, and measuring, the fourth sector. (First of a two-part article) “There are three estates in Parliament but in the Reporters’ Gallery yonder there sits a Fourth Estate more important far than they all. It is not a figure of speech or witty saying, it is a … Read More Defining the frontier sector

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Medium-term dynamics for India post Covid-19 lockdown

Shape of economic recovery will determine employment, debt and exchange rates. The immediate fiscal deficit dynamics and growth outcomes for India post Covid-19 lockdown have been the subject of intense analysis and discussion. The human crisis of lives and livelihood did demand both an immediate and urgent response. With the lockdown now opening and economic activity picking up, it is important to look beyond … Read More Medium-term dynamics for India post Covid-19 lockdown

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Here’s why India may end up choosing capital flows over current account flows

India may end up implicitly choosing a stance of preferring capital flows over current account flows, if it sets a GDP target in a foreign currency. A currency serves two purposes: medium of exchange and store of value. We have explored this idea in these pages in a different context earlier when we looked at the relationship between legacy finance firms and fintech companies. … Read More Here’s why India may end up choosing capital flows over current account flows

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State finances: Finding the monies

As the Centre and States try to find GST compensation cess monies, it is time to look beyond the present, to see how the future could unfold for State finances. The financial relationship between states and the Centre has been in news recently. The Fifteenth Finance Commission submitted its report to the president; there have been some delays in payment of the GST compensation … Read More State finances: Finding the monies

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Fiscal architecture for a US$5 trillion economy

The evolution of India’s tax-to-GDP ratio will require significant political and social consensus—a strategic modelling and planning of tax POLICIES is required. India’s tax-to-GDP ratio at the government level has hovered around 18-19% of GDP over the last few years (between FY17 and FY20E). Coupled with disinvestments, dividends, and other receipts, the central government mops up another 5-6% of GDP, taking the total revenues … Read More Fiscal architecture for a US$5 trillion economy

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Guiding markets from crisis to calm

This requires confidence, coordination and capital; resolution can’t be imposed using policy actions. When commemorating anniversaries, we tend to reserve our special attention for round-number, decadal years. Last year, around this time, the world—and India—remembered and recounted its lessons from the Great Financial Crisis (GFC) that reverberated across the globe in September 2008. Since it is the nature of history to repeat, but not … Read More Guiding markets from crisis to calm

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Arresting slowdown: Export focus fine, but there’s more to growth

From purely a financial perspective of current account deficit, the distinction between goods and services does not matter. The exports performance of Vietnam continues to be contrasted with that of India: the most recent example being the editorial in this newspaper, “Can India learn from Vietnam to manage export-led growth?”. The article, similar to other analyses on this topic, focusses on the significant ramp-up … Read More Arresting slowdown: Export focus fine, but there’s more to growth

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India’s future fiscal architecture: Disinvest and Redesign

The knife-edge balanced nature of Government finances means that there is little leeway available for the Central and State Governments whenever there is a shortfall in receipts or an increase in expenditure. In both cases, they automatically reflect in a substantial change in the fiscal deficit. As India moves towards a US$5 trillion GDP economy, the current slowdown and the longer-term runway offers two … Read More India’s future fiscal architecture: Disinvest and Redesign