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Insight :: Economics
The real engines of India's economic growth
India's growth rate in the 1st calendar quarter of 2009 fell to 5.8%, after multiple years of greater than 8% annual growth. This has lead to a clamor in the media about the need to bring back foreign investments.
Professor R. Vaidyanathan, says that we might be missing the woods for the trees.
Conventional wisdom is that liberalisation and resulting inflow of foreign capital to corporate India are the primary reasons for India's rapid growth in the past decade. The recent fall in the growth rate has led to much discussion in business media and economic circles on the stimulus required for corporate India.
Viewpoint :: Economics
Is the East more relevant for India today?
Much ink has been spent in popular media on the recent H-1B/L-1 visa tax bill. While the Indian government and industry associations such as NASSCOM have made public announcements that this measure is WTO incompatible and that they will be raising it at the WTO, the ultimate response may be much more muted than the initial noise that has been generated. Part of this is due to the lack of clarity on whether this measure is indeed discriminatory and non-compliant with the WTO. But the other reason may be that the Indian government is taking a much more strategic approach to its trade and investment relations by diversifying its trade markets and balancing its interests across goods, services, investment flows , and geo-political considerations.
One of the most important developments in this regard has been India’s active pursuit of Regional Trade Agreements (RTA) which include Free Trade Agreements (FTA) and Preferential Trade Agreements (PTA) with Asian nations in the past decade as part of its Look East Policy. What is driving India's appetite for RTAs, particularly when many economists consider them to be harmful to the world trading system? Professor Rupa Chanda of IIMB and Sasidaran Gopalan have analyzed the factors underlying this trend and its implications.
Viewpoint :: Economics
US protectionism - An opportunity in disguise?
Business organizations such as NASSCOM and even the Indian government have talked up a storm about recent US protectionist moves. Indian mainstream media have also made the hike in H1B and L1 visa fees or Ohio state's ban on IT outsourcing front page news and the subject of editorials. While all admit that India's $60 billion IT industry will be largely unaffected in the near term, Professor Rupa Chanda of IIMB argues, this presents Indian IT companies and the Indian government with an opportunity to introspect and look strategically at their export markets.
The growth of the Indian IT industry has come on the back of export earnings and 67% of these export earnings come from the United States alone. With US unemployment holding at double digits, a persistent recession and fears of a double dip, the US government is faced with hard choices both economically and politically. Professor Chanda recommends take that we take a long- term view and address important priorities that will both make Indian IT industry more competitive and less reliant on the US market.
Viewpoint :: Economics
Should central banks burst bubbles?
In the past few decades, major central banks around the globe have exhibited a marked shift towards openness and transparency in the way they make their policies and conduct their operations. This has strengthened their role in the economy, the effectiveness of their policy and increased their credibility.
In India, the RBI conducts its policies to achieve price stability, economic growth and financial stability. It does this via policy pronouncements, implementation of certain direct and indirect tools and regulatory frameworks such as banks' lending practices. Overseas, central banks such as the Fed have articulated their role as primarily "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
The global economic crisis and its near universally-felt effects have led to a closer examination of the role of central banks (and bankers). Among various policy implications, it brings to fore the role of central banks in providing economic and financial stability. Professor Vandana Singhvi Patel of the Indian Institute of Management, Bangalore examines the role of asset bubbles and how central banks should treat them.
Viewpoint :: Economics
Is a strong rupee bad for business?
Indian IT firms, who've grown on the strength of their software exports constantly warn of the effects of a strong rupee on their profits. Smaller IT firms are even more susceptible to exchange rate swings as are textile and other low margin exporters. Does this mean the RBI should intervene to keep the rupee from appreciating too much? Even Indian economists rarely seem to agree on whether a strengthening rupee is good or bad for business.
Professor Vivek Moorthy of IIMB argues that worrying about the rupee exchange rate in isolation, without understanding the reasons behind its behavior, is of little use. He outlines when a strengthening rupee is good and what steps the central bank should take to ensure a predictable exchange rate.
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