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| 1 |
ID:
134737
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| Summary/Abstract |
This article addresses the issue of past and future types of monetary-fiscal coordination that can deliver inclusive growth and low inflation in the Indian context. After India’s Independence, monetary policy was subordinated to planned development and, therefore, implicitly directed at inclusion. But large areas of the economy were still not monetised, and the modern sector was small. So inclusion was about expanding the sphere of the modern economy. Once a populous emerging market (EM) crosses a critical threshold and high catch-up growth is established, higher labour mobility blurs the distinction between the formal and informal sectors. A macroeconomics of the aggregate economy becomes both necessary and feasible. Since monetary policy affects a larger part of the economy, it can directly affect inclusion by affecting the pace of job creation. But bottlenecks that raise costs, pushing up the price at which any level of output is available, can force monetary tightening. If fiscal policies are redesigned for active inclusion that expands human capacity, makes more productive labour available, and reduces wasteful distortions, monetary policy can better support the objective of inclusive growth. The change in the type and efficacy of government policies designed for inclusion required has become politically and technologically feasible.
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| 2 |
ID:
160031
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| Summary/Abstract |
We estimate the determinants of credit and of non-performing assets (NPAs) using a firm and a bank panel with data up to 2015 in order to test bank lending against the aggregate demand channel as an explanation for slow Indian credit growth. The results support demand as the key constraint. Only demand variables affect corporate credit for a broad set of firms. Balance sheet weakness reduced credit only for a narrow subset of indebted firms in a difference-in-difference type analysis. Even so, sales remained the dominant variable. From the bank panel, the asset quality review (AQR) did have a strong negative effect on advances but gross NPAs did not. While high interest rates and low growth raised NPAs, so did past credit. Low demand not only reduced credit, it also increased NPAs. That the capital adequacy ratio (CAR) significantly reduces NPAs points to the productivity of fund infusion. When other determinants are controlled, bank ownership does not affect NPA ratios, again supporting external shocks as causal. The results suggest that apart from structural reform to clean balance sheets, recovery of demand is necessary for revival of credit growth.
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| 3 |
ID:
141501
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| Summary/Abstract |
Inclusive institutions make correct policy choices required for steady catch-up growth more likely. India started out with highly inclusive political institutions since it adopted democracy with universal suffrage at independence. But extractive economic institutions, inherited from the British, were made more so by economic controls. In addition, a heterogeneous electorate allowed politicians to cultivate vote-banks and populist schemes instead of delivering better public services and governance. India’s opening out was adequately nuanced and flexible but was sometimes used as a substitute for harder domestic reforms. It, however, added to the growing constituencies that benefit from growth, and are pushing for more inclusive productivity enabling economic institutions. Broader interest groups create better institutions and incentives. Examples from general governance, the regulation of industry, and agricultural marketing show the process, although messy and prolonged, is in the right direction.
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