Archive for August 26th, 2009

The role of academics in monetary policy

August 26, 2009

This is an excellent account of how academics have shaped the various research/economist ideas shaped monetary policy at central banks. It is from Riksbank economists so the focus is on Sweden but is a good read. It is like this Mishkin chapter but has some more ideas on inflation targeting.  

Apart from this, the paper tells us about how Riksbank uses academics to further its efforts. There are 3 ways:

  • interaction – this is the informal way here central banks work on the acad ideas and acads do research on central banks policies
  • formal collaboration – In this Riksbank funds  outside economists for reports/papers and both work closely.
  • internalisation- riksbank has developed its own staff of monetary economists and funds various research papers/projects

This pretty much applies to most central banks and is a neat categorisation of research work at central banks.

This got me interested in another issue. As I posted sometime ago, RBI evolved its own Multiple Indicator Approach. I was just  wondering what academic thinking led to this unique framework. I haven’t come across any developed/developing world monetary economist advocating such approach. So it is pretty much an Indianised version which has worked quite well given the Indian setting. I haven’t come across any papers barring RBI speeches/RBI papers explaining the approach. Even these papers just explain the framework. What is more interesting (atleast for a history loving person like me) is which RBI economists/economic thought led to this framework? What were the main issues/constraints?

It will be great if RBI publishes some papers on Indian monetary history discussing these ideas. If such papers already exist and visitors know it, please let me know.

Leakages in TPDS System and Plan Com’s Evaluation Reports

August 26, 2009

As Planning Commission has redone its website,, locating information is all the easier. I knew about its evaluation studies (evaluation of various govt programs) but had not really read much into it.

So I stumbled upon the various studies once again and was immediately hooked. With so many govt programs (food, poverty, employment etc) it is important to know about their effectiveness.

So, I was reading the broad findings of the evaluation of Targeted Public Distribution System (large pdf file). It says:

  • The implementation of TPDS is plagued by targeting errors,prevalence of ghost cards and unidentified households;
  • Though the off-take per household has shown some improvement under TPDS, yet only about 57% of the BPL households are covered by it;
  • The FPSs are generally not viable because of low annual turnover and they remain in business through leakages and diversions of subsidised grains;
  • Leakages and diversions of subsidized grains are large and only about 42% of subsidized grains issued from the Central Pool reaches the target group;
  • Over 36% of the budgetary subsidies on food is siphoned off the supply chain and another 21% reaches the APL households; and
  • The cost of income transfer to the poor through PDS is much higher than that through other modes.
  • According to the study, for one rupee worth of income transfer to the poor, the Gol spends Rs.3.65, indicating that one rupee of budgetary consumer subsidy is worth only 27 paise to the poor. The results obtained deserve careful consideration.

Rajeev Gandhi had once said out of every rupee only 15 paisa reaches the public. I dont know the year he made this or based on what study. But this study has been done in 2005, 15 years after his death the figure is still 27 paisa for every rupee!!! I am sure other reports on the same subject would also be saying the same.

Another major problem is there are so many schemes with each one overlapping the other that one can never understand anything. And the leakages and inefficiencies in each new scheme continue with the old ones. I don’t know what happens to the suggestions of these reports.

And now we have the new food program- food security. Finance Minister in his 2009-10 budget speech said:

I am happy to announce that the work on National Food Security Act has begun in right earnest. This will ensure that every family living below the poverty line in rural or urban areas will be entitled by law to 25 kilos of rice or wheat per month at Rs.3 a kilo. The Government proposes to put the draft Food Security Bill on the website of the Department of Food and Public Distribution for public debate and consultations very soon.

I don’t know how would the logistics of this ambitious program would work out. It doesn’t look good at all. The previous record is not great at all. And what happens to the existing PDS/TPDS and other programs?


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