Archive for September 26th, 2013

Estimating India’s fiscal multiplier..

September 26, 2013

The blogger attended a stirring talk by Dr NR Bhanumurthy of NIPFP at IIM, Bangalore yesterday based on this paper.

In the paper he and his colleague calculate fiscal multipliers based on a model spanning for 20 years. There is hardly any research on the fiscal multiplier issue in India and this paper tries to bridge the gap.The paper shows India has a much larger multiplier in case govt expenditure is for capital creation than for wasteful revenue exp (which is fairly intuitive). However, in case of tax multiplier, we get a negative multiplier:

(more…)

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Seventh Pay Commission is on …so is the game for 2014 elections..

September 26, 2013

The formula has been nearly perfected for winning general elections in India..announce a rights bill for poor and announce the pay commission just ahead of elections….

Last time it was NREGA and this time it is food security bill. Last time it was the 6th pay and now we have this 7th pay commission. Interestingly my friend Neetika informs me that 6th pay commission was implemented retrospectively. So it was announced in 2008 but awarded from 2006 onwards…And then came elections and rest we know is history…Though am not sure, how many expected 7th pay commission along with this FSB.

There is fair bit of criticism on this new move with most saying what this post is saying. Some have even expected rise in wages due to the commission.

I mean the idea is not to criticise the pay commission per se. India has a huge public sector and public sector people have to feed their families too. The runaway inflation in last few years must have dented majority if gains made in 6th pay commission.  Now one could criticise the commission saying public sector in inefficient and we do not nee a hike. Well, that is a related but different mater, Till we have a a large public sector, we will have a pay commission.

What is an issue is the timing of the move. Why can’t we have these commissions announced in the beginning or the middle of the term of the government. What just before elections is the award given or commission announced?

What does one say really over these measures….As things have improved in markets (only in markets and not otherwise) recently some experts have started saying perhaps the economic record of current govt is not as bad as it sounds. A leading business daily has even awarded the best change agent to the current FM. Well, one does not even know how to react to all this. It just requires a few upward ticks in markets to start getting appreciation from people that matter..It is not just the media but top experts/corporates who should question such moves. Somehow the feeling is that as long as markets keep moving, all is well..


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