ISSUES ON POVERTY AND CLIMATE CHANGE

INTERNATIONAL RESEARCH JOURNAL OF HUMANITIES AND ENVIRONMENTAL ISSUES- Volume-1,Issue-7( I ),October 2012 , pp1-4

ISSUES ON POVERTY AND CLIMATE CHANGE

Dr.Debesh Bhowmik[1]

KEY WORDS - climate change, poverty

JEL-I30, I38

Objective

There is a good correlation between poverty and climate change and therefore climate change affects poor in every corner of social, economic and political life .The association between poverty and climate change is a general problem of the world now and to fight against poverty is to fight against climate change otherwise the goal of sustainable development   will be in vain. A strong , honest and farsighted government must have strong policies on the poverty-climate change nexus.

           This paper tries to endeavor to study on the poverty climate change nexus and will show some roles of governance.

The Nexus  Between Poverty And Climate Change

The World Bank now estimates that as many as 2 billion people will lack sufficient drinking water by mid-century as a result of climate change, with 100-400 million people experiencing severe poverty. A new report by GCCA and Realizing Rights delves into the interconnection between poverty and climate change.

However, the impacts of climate change on the poor will be context-specific, reflecting factors such as geographic location; economic, social, and cultural characteristics; prioritization and concerns of individual households, and social groups; as well as institutional and political constraints. The following points illustrate the impacts of climate change on poor people’s livelihoods.

● Climate change is projected to reduce poor people’s livelihood assets, for example, health, access to water, homes, and infrastructure.

● Climate change is expected to alter the path and rate of economic growth due to changes in natural systems and resources, infrastructure, and labor productivity. A reduction in economic growth directly impacts poverty through reduced income opportunities.

● Climate change is projected to alter regional food security. In particular in Africa, food security is expected to worsen.

● Direct effects of climate change include increases in heat-related mortality and illness associated with heat waves ● Climate change may increase the prevalence of some vector-borne diseases and vulnerability to water, food, or person to- person borne diseases.

● Climate change will likely result in declining quantity and quality of drinking water, which is a  pre requisite for good health, and exacerbate malnutrition – an important source of ill health among children – by reducing natural resource productivity and threatening food security, particularly in Sub-Saharan Africa.

● Links to climate change are less direct, but loss of livelihood assets (social, natural, physical, human, and financial capital) may reduce opportunities for full-time education in numerous ways. Natural disasters and drought reduce children’s available time, while displacement and migration can reduce access to education opportunities.

● Climate change is expected to exacerbate current gender inequalities. Depletion of natural resources and decreasing agricultural productivity may place additional burdens on women’s health and reduce time available to participate in decision making processes and income generating activities.

● Climate related disasters have been found to impact more severely on female headed households, particularly where they have fewer assets to start with.

● Climate change will alter the quality and productivity of natural resources and ecosystems, some of which may be irreversibly damaged, and these changes may also decrease biological diversity and compound existing environmental degradation.

● Global climate change is a global issue and response requires global cooperation,

IPCC (2001b) suggests that temperature rise by 2100 could lead to significant increases in potential breeding grounds for malaria in parts of Brazil, Southern Africa, and the Horn of Africa. In a few areas – such as parts of Namibia and the West African Sahel – malaria risk may fall due to excessive heat. In Africa, cities that currently are not at risk of malaria because of their high altitudes, such as Nairobi and Harare, may be newly at risk if the range in which the mosquito can live and breed increases.(Gallup and Sachs 2000).

In 2000, Kenya experienced its worst drought in 40 years. Effects were severe for pastoralists because ancient coping mechanisms had broken down, either because land had been sold or because of barriers erected by the relatively affluent farmers, ranchers, industry, and city residents. Some traditional drought responses, such as raiding of neighboring cattle and killing wildlife, have become illegal and are no longer an option. As societal norms affect traditional behavior, strategies may no longer be valid and there is the need to support the vulnerable population in identifying new strategies that enable them to deal with adverse climate and adjust to new socioeconomic conditions. ( UNEP 2002).

The community-based cyclone preparedness program in Bangladesh has found that where women were not involved in village level disaster preparedness committees, responsible for maintaining cyclone shelters and transmitting warnings, they made up the highest proportion of cyclone victims. In Cox’s Bazaar in east Bangladesh, where women are now fully involved in disaster preparedness and support activities (education, reproductive health, self-help groups, and small and medium enterprises), there has been a huge reduction in the numbers of women killed or affected.The situation in India as a result of climate change was estimated by World Bank in the following manner.

In India 33.516 million hectares of land have been identified as flood-prone. India is one of six major cyclone-prone countries in the world. According to the Vulnerability Atlas of India  approximately 5,700 km of the 7,500 km long coastline are prone to cyclones arising from the Bay of  Bengal and Arabian Sea. Cyclonic storms and storm surges have been responsible for some severe fatalities along the coasts, the worst of which was caused during the Orissa Super  cyclone (1999) killing at least 10,000 people .The hilly regions of India are susceptible to landslide and avalanche hazards. The most vulnerable are the Himalayan Mountains followed by the North-Eastern hill ranges. Between 1990 and 2008 natural disasters affected more than 885 million people in India. The World Bank  has provided the following figures relating to natural disasters in India :

[i]Population: 1,071,608,000,[ii] Population affected: 885,244,000,[iii]Number of deaths: 53,400,[iv]Damage (US$): 25.74 billion

In the period 1990-2008 floods accounted for the majority of damages in terms of costs in South Asia . India’s reported cost of damage by floods has been the highest in the region .While the country is familiar with annual floods in Assam, Bihar and Uttar Pradesh, new areas have been witnessing major floods (for example, Mumbai floods in 2005, Kosi (Bihar) floods in 2008, Andhra Pradesh and Karnataka floods in 2009). All this entails huge economic losses and causes developmental setbacks. In India, for instance, the direct losses from natural disasters have been estimated to amount to up to 2 per cent of India’s GDP and up to 12 per cent of central government revenues. At times state governments have spent more on relief and damages than on their rural development programme. In the state of Maharashtra, for example, a single drought in 2003 and a flood in 2005 consumed more of the budget (Rs 175 billion) than the entire planned expenditure (Rs 152 billion) on irrigation, agriculture, and rural development during 2002–2007 .

Many researches showed that an increase of 2^oC in temperature could decrease the rice yield by about 0.75 ton/ha in the high yield areas; and a 0.5^oC increase in winter temperature would reduce wheat yield by 0.45 ton/ha. It was found that decrease in yield of crops as temperature increases in different parts of India - For example a  2°C increase in mean air temperature, rice yields could decrease by about 0.75 ton/hectare in the high yield areas and by about 0.06 ton/ hectare in the low yield coastal regions. Major impacts of climate change will be on rain fed crops (other than rice and wheat), which account for nearly 60% of crop land area. In India poorest farmers practice rain fed agriculture. Also, the loss in farm-level net revenue will range between 9 and 25% for a temperature rise of 2-3.5°C.

Climate change can depress the economy by affecting the sources of growth. The exact nature and scale will depend on a number of factors including:

● Quality of economic growth and distribution of its benefits.

● Structure of the economy.

● Ability of the government to finance important  social services such as education and health.

● Longer-term implications of disruption to existing  growth paths through, for example damage to infrastructure.

In Fisheries, the Marine fisheries supply is an important proportion of the world food supply and may represent a much greater importance for local or regional food security in developing countries where fish provides an important source of protein. Several major ocean fisheries have already been subject to collapse and almost all of the 200 main fisheries monitored by the Food and Agriculture Organisation (FAO) are fully exploited.

The IPCC (2001) has stated that “overall negative health impacts are anticipated to outweigh positive health impacts from climate change”.

[i]            Infectious diseases, [ii]       Water related health impacts [iii]     Under-nutrition

The majority of studies have focused on the issue of food security, generally predicting overall negative impacts for developing countries. On the issues of food security, attention to the effects of climate change on the following:

[i]            cash crops (such as coffee, tea and cotton) and cereals.[ii]        livestock  [iii]        wild life and tourism

[iv]          horticultural crops

Therefore , Food Security is closely associated with agricultural production and thereby linked to climate or environment.We may raise the issue that the  Climate change may affect agriculture through:

             Changes in temperature and precipitation,                 Changes in soil moisture and soil fertility,

             Changes in the length of growing season and             An increased probability of extreme climatic conditions (as dealt with above).

Global climate models (GCMs) predict that aggregate changes in world food production are likely to be small. However there is general agreement that climate change may lead to significant reductions in agricultural productivity in developing countries. In the areas of Food Security and Water Resources, Water availability is a key component of food security, given the reliability of water supplies is perhaps the single most important factor in food production. In general climate change is expected to lead to more precipitation, but much of this increased wetness may not end up where it is most needed. Arid and semi-arid regions are likely to suffer even more reduced rainfall and increased evaporation. In this respect, climate change is an added risk to these regions which have already been undergoing a process of increased desertification and land degradation, caused both by overexploitation and inappropriate land-use as well as general climatic variations.

Agriculture ,climate change and poverty

Schmidhuber and Tubiello (2007) conclude that climate change will accentuate the existing focus of food insecurity on sub-Saharan Africa and, to a lesser extent, on South Asia.

The study of Rosenberg and Crosson (1991) on Missouri,Iowa,Nebraska and Kansas(MINK) concluded that warming by 2030 would reduce agricultural production in MINK area by 17.1% without considering carbon fertilization. Reilly, Hohmann, Kane(1994) estimated that without carbon fertilization or adoption, benchmark warming would impose global damage ranging from $ 116 billion (at 1989 prices) to $ 248 billion across three climate models. The study of Tol(2002) identified the agricultural impact of global warming for 9 regions which were significantly negative at 2.5°C. Jorgenson(2004) showed that world agriculture will decline by 26%  in a central climate scenario with 2.4°C global mean warming and 3.1°C US warming by 2100. Inter-governmental Panel on Climate Change (2007) concludes that crop productivity would increase at 1-3°C local mean temperature and decreased beyond at high latitude  but the productivity would decrease at 1-2°C local mean temperature at lower latitude.

Government Policy

In  food insecurity as a result of climate change ,a government can formulate [i] the change of cropping pattern,[ii] cropping varieties,[iii] changing timing of irrigation and adjusting nutrient management,[iv] applying water-conserving technologies and promoting agro biodiversity for increased resilience of agricultural systems,[v] applying genetic engineering plants etc. In the other front, government should,[1] revamp PDS and food procurement process more stronger,[2] Identify APL and BPL properly,[3] improve the accuracy of the weather forecasting especially for agricultural output.National Action Plan on Climate Change (NAPCC) and Food Security Bill will immensely benefit the new poor as a result of climate change.

   Conclusion

 Both the targets of global poverty eradication and reduction of global emission have failed. The series of poverty alleviation summits and the climate summit from Rio to Copenhagen to Durban have been ended in a smoke. There are divergences among the rich and poor countries on the issues of building global fund and its contribution and the targets there of. The shares of burden differ and the agreements siphoned off.So the world inequality aggravates, poor Africa become poorer with South Asia. The OECD countries emit larger share of GHG but they did not agree to contribute and cut larger emissions. Cross border effects of climate change hinder the poorer regions adversely and thereby create “climate refugee” and “new poor” .If the process continues, the dream of green world will become red and the world will be an abode of war.

References

Bhowmik,Debesh(2007):Economics of Povery(Deep and Deep,NewDelhi).

…………………(2011): A note on  policies relating to climate change.-Paper published in R.K.Sen and Somnath Hazra edt “ Environmental Economics and Sustainable Development(some emerging issues”,Deep and Deep ,NewDelhi,2011 ,pp1237-150

……………..(2012):Issues on Forest Management and Climate Change. R.K.Sen Edt-Forest Management and Sustainable Development.(Deep and Deep,NewDelhi)

…………….(2012): An Introduction to Food Security and Climate Change. Food Security in India-ed-Biswajit Chatterjee and Asim K.Karmakar.( BEA)(Regal Publications,NewDelhi,)pp210-225

Gallup,J.L.,and J.D.Sachs.(2000):The Economic Burden of Malaria.CID Working Paper 52,Centre for International Development.Harvard University.

Gregory,Ken(2010): Climate Change Science.Canada.

IPPC. (2007): http://www.ipcc.ch/

Jorgenson,Dale W. and others(2004):US Market Consequences of Global Climate Change .Arlington,VA:Pew Centre on Global Climate Change(April)

Reilly, J., N. Hohmann, and S. Kane.(1994). Climate Change and Agricultural Trade: WhoBenefits, Who Loses? Global Environmental Change 4, no. 1: 24–36.

Rosenberg, Norman J., and Pierre R. Crosson.(1991). Processes for Identifying Regional Influences of          and Responses to Increasing Atmospheric CO2 and Climate Change: The MINK project—  An Overview. DOE/ RL/ 01830T-H5 (August). Washington: US Department of Energy.

Schmidhuber, J. and Tubiello, F.N. (2007): Global food security under climate change.Proceedings of the National Academy of Sciences 104: 19703-19708.

Stern Review.( 2006). The Economics of Climate Change: The Stern Review. Cambridge, UK: Cambridge University Press, 2007.

Tol,Richard S.J.(2002):Estimates of Damage Costs of Climate Change.Environmental and Resource Economics 21:47-73.

UNEP (2002): Global Environment Outlook 3. UK: Earthscan Publications Ltd.

…………….(2007): Global Warming and Agriculture: Impact Estimates by Country. (Washington, DC: Center for Global Development and the Peterson Institute for International Economics, 2007).

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[1] The author is associated with International Institute for Development Studies,Kolkata,Executivemember,Bengal Economic Association, Life member, Indian Economic Association.

NOBEL PRIZE IN ECONOMICS-2012

NOBEL ECONOMISTS – 2012

Dr.Debesh Bhowmik

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2012 to Alvin E. Roth, of Harvard University and Harvard Business School, and Lloyd S. Shapley, of the University of California, Los Angeles, "for the theory of stable allocations and the practice of market design."

This year's Prize concerns a central economic problem: how to match different agents as well as possible. Lloyd Shapley used so-called cooperative game theory to study and compare different matching methods. A key issue is to ensure that a matching is stable in the sense that two agents cannot be found who would prefer each other over their current counterparts. Shapley and his colleagues derived specific methods -- in particular, the so-called Gale-Shapley algorithm -- that always ensure a stable matching. These methods also limit agents' motives for manipulating the matching process. Shapley was able to show how the specific design of a method may systematically benefit one or the other side of the market.
Alvin Roth recognized that Shapley's theoretical results could clarify the functioning of important markets in practice. In a series of empirical studies, Roth and his colleagues demonstrated that stability is the key to understanding the success of particular market institutions. Roth was later able to substantiate this conclusion in systematic laboratory experiments. He also helped redesign existing institutions for matching new doctors with hospitals, students with schools, and organ donors with patients. These reforms are all based on the Gale-Shapley algorithm, along with modifications that take into account specific circumstances and ethical restrictions, such as the preclusion of side payments.Even though these two researchers worked independently of one another, the combination of Shapley's basic theory and Roth's empirical investigations, experiments and practical design has generated a flourishing field of research and improved the performance of many markets.
**Alvin E. Roth, a Jewish American, graduated from Columbia University in 1971 with a degree in Operations research. He then moved to Stanford University, receiving both his masters and PhD in Operations research there in 1973 and 1974 respectively.
After leaving Stanford, Roth went on to teach at the University of Illinois until 1982. He then served as the Andrew W. Mellon Professor of Economics at the University of Pittsburgh until 1998, when he left to join the faculty at Harvard where he remained until deciding to return to Stanford in 2012. In 2013 he will become a full member of the Stanford faculty and will take emeritus status at Harvard.
Roth is an Alfred P. Sloan fellow, a Guggenheim Fellow, and a fellow of the American Academy of Arts and Sciences.He is also a member of the National Bureau of Economic Research (NBER) and the Econometric Society. Al Roth, a Jewish American, graduated from Columbia University in 1971 with a degree in Operations research. He then moved to Stanford University, receiving both his masters and PhD in Operations research there in 1973 and 1974 respectively.
After leaving Stanford, Roth went on to teach at the University of Illinois until 1982. He then served as the Andrew W. Mellon Professor of Economics at the University of Pittsburgh until 1998, when he left to join the faculty at Harvard where he remained until deciding to return to Stanford in 2012. In 2013 he will become a full member of the Stanford faculty and will take emeritus status at Harvard.
Roth is an Alfred P. Sloan fellow, a Guggenheim Fellow, and a fellow of the American Academy of Arts and Sciences.He is also a member of the National Bureau of Economic Research (NBER) and the Econometric Society.

Roth is the author of numerous scholarly articles, books, and other publications. A selection:

• 1979. Axiomatic Models of Bargaining, Lecture Notes in Economics and Mathematical Systems. Springer Verlag.
• 1985. Game-Theoretic Models of Bargaining, (editor)Cambridge University Press, 1985.
• 1987. Laboratory Experimentation in Economics: Six Points of View. (editor) Cambridge University Press. (Chinese translation, 2008)
• 1988. The Shapley Value: Essays in Honor of Lloyd S. Shapley. (editor) Cambridge University Press.
• 1990. Two-Sided Matching: A Study in Game-Theoretic Modeling and Analysis. With Marilda Sotomayor. Cambridge University Press.
• 1995. Handbook of Experimental Economics. Edited with J.H. Kagel. Princeton University Press.
• 2001. Game Theory in the Tradition of Bob Wilson. Edited with Bengt Holmstrom and Paul Milgrom.

Roth has published over 70 articles in peer reviewed journals. According to Scopus, the most widely cited have been:

• ——— (1985). "The College Admissions Problem is not Equivalent to the Marriage Problem". Journal of Economic Theory 36 (2): 277–288.
• (1991). "A Natural Experiment in the Organization of Entry-Level Labor Markets: Regional Markets for New Physicians and Surgeons in the United Kingdom". American Economic Review (American Economic Association) 81 (3): 415–440.
• Erev, I.; ——— (1998). "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria". American Economic Review (American Economic Association) 88 (4): 848–881.
• Slonim, R.; ——— (1998). "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic". Econometrica (The Econometric Society) 66 (3): 569–596.
• ———; Peranson, E. (1999). "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design". American Economic Review (American Economic Association) 89 (4): 748–780
• ———; Ockenfels, A. (2002). "Last-minute bidding and the rules for ending second-price auctions: Evidence from eBay and Amazon auctions on the internet". American Economic Review 92 (4): 1093–1103..
• ———; Sönmez, T.; Ünver, M. U. (2004). "Kidney exchange". Quarterly Journal of Economics 119 (2): 457–488
•  

***Lloyd Stowell Shapley (born June 2, 1923) is a distinguished American mathematician and economist. He is a Professor Emeritus at University of California, Los Angeles, affiliated with departments of Mathematics and Economics. He has contributed to the fields of mathematical economics and especially game theory. Since the work of von Neumann and Morgenstern in 1940s, Lloyd Shapley has been regarded by many experts as the very personification of game theory. With Alvin E. Roth, Shapley won the 2012 Nobel Memorial Prize in Economic Sciences "for the theory of stable allocations and the practice of market design. Lloyd Shapley was born on June 2, 1923, in Cambridge, Massachusetts, one of the sons of the distinguished astronomer Harlow Shapley. He was a student at Harvard when he was drafted in 1943, and in the same year, as a sergeant in the Army Air Corps in Chengdu, China, he received the Bronze Star decoration for breaking the Soviet weather code. After the war, he returned to Harvard and graduated with an A.B. in mathematics in 1948. After working for one year at the RAND Corporation, he went to Princeton University where he received a Ph.D. in 1953. His thesis and post-doctoral work introduced the Shapley value and the core solution in game theory. After graduating, he remained at Princeton for a short time before going back to the RAND corporation from 1954 to 1981. Since 1981 he has been a professor at UCLA

His publications

• A Value for n-person Games [1953], In Contributions to the Theory of Games volume II, H.W. Kuhn and A.W. Tucker (eds.).
• Stochastic Games [1953], Proceedings of National Academy of Science Vol. 39, pp. 1095–1100.
• A Method for Evaluating the Distribution of Power in a Committee System [1954] (with Martin Shubik), American Political Science Review Vol. 48, pp. 787–792.
• College Admissions and the Stability of Marriage [1962] (with David Gale), The American Mathematical Monthly Vol. 69, pp. 9–15.
• Simple Games : An Outline of the Descriptive Theory [1962], Behavioral Science Vol. 7, pp. 59–66.
• On Balanced Sets and Cores [1967], Naval Research Logistics Quarterly Vol. 14, pp. 453–460.
• On Market Games [1969] (with Martin Shubik), Journal of Economic Theory Vol. 1, pp. 9–25.
• Utility Comparison and the Theory of Games [1969], La Decision, pp. 251–263.
• Cores of Convex Games [1971] International Journal of Game Theory Vol. 1, pp. 11–26.
• The Assignment Game I: The Core [1971] (with Martin Shubik), International Journal of Game Theory Vol. 1, pp. 111–130.
• Values of Non-Atomic Games [1974] (with Robert Aumann), Princeton University Press.
• Mathematical Properties of the Banzhaf Power Index [1979] (with Pradeep Dubey), Mathematics of Operations Research Vol. 4, pp. 99–132.
• Long-Term Competition – A Game-Theoretic Analysis [1994] (with Robert Aumann), In Essays in Game Theory: In Honor of Michael Maschler Nimrod Megiddo (ed.), Springer-Verlag.
• Potential Games [1996] (with Dov Monderer), Games and Economic Behavior Vol. 14, pp. 124–143.
• On Authority Distributions in Organizations [2003] (with X.Hu), Games and Economic Behavior Vol. 45, pp. 132–152, 153-170.

His Awards and honors

• Bronze Star, U.S. Army Air Corps, 1944
• Procter Fellow, Princeton University, 1951–52
• Fellow, Econometric Society, 1967
• Fellow, American Academy of Arts and Sciences, 1974
• Member, National Academy of Sciences, 1979
• John von Neumann Theory Prize, 1981
• Honorary Ph.D., Hebrew University of Jerusalem, 1986
• Fellow, INFORMS (Institute for Operations Research and the Management Sciences), 2002
• Distinguished Fellow, American Economic Association, 2007
• Sveriges Riksbank Nobel Memorial Prize in Economic Sciences, 2012

FINANCIAL SECTOR LIBERALISATION IN INDIA:THEORY AND EMPIRICS

Bengal Economic Association organised a Mid-Year Seminar2012 on "Financial Sector Liberalisation in India:Theory and Empirics" in Vidyasagar University ,Department of Economics, on 6th October,2012.The Keynote Speech was given by Prof.N.R.Bhanumurty,NIPFP,NewDelhi on "Financial Sector Reforms and Financial Access in India and the invited lecture was delivered by Prof.(Retired) P.C.Das,IIT,Kharagpur,on "Liberalisation of the Financial Sector in India and its impact on growth and stability".Various research papers were presented by many Assistant Professors and emminent speakers.
Arindam Gupta spoke about 'Inclusion Driven reform in the Indian Banking Sector:The Government and the people'.Kalpataru Bandopadhyay and Tarak Nath Sahu told on "Poverty,Government Policy and Rate of Interest in Microfinance".Bratati Dasgupta spoke on "Inclusive growth and urban cooperative banks in the light of financial sector reform in India".Sathi Malakar delivered about "Financial sector reform in India :Theory and Empirics".Asim Karmakar said on "Financial sector reform in India".Mahasweta Bhattacharjee told on "Impact of liberalisation on Financial performances of public sector general insurance in India".Partha Sarkar told about"India's experiences with financial liberalisation,Anupam Parua spoke on "Scam-Prone India Inc.:A study of impact of reform measures".Dhraj Bandopadhyay told on "Impact of financial liberalisation on Indian economy...",Partha Pratim Roy spoke on "Financial sector reform and functioning of regional rural banks in India".Sarbapriya Ray and M.K.Pal told on "Exploring inflation and stock price behaviour in selected asian economics".Debes Mukhopadhyay told about"Financial sector reform in India with special emphasis on the banking sector reform",Anindya Mukherjee spoke on "Financial sector liberalisation in India vis-a-vis the political economy of our epoch",Bikas Das said about"Moving mutual fund from infancy to adolescence through liberalisation",Sanchita De told on "India's Liberalisation process and development of the financial sector",Sebak Jana delivered on "Efficiency of the district co-operative banks in WestBengal",Abhijit and Tanya told on "Financial liberalisation"A catalyst in economic development, and "An empirical study of banking sector in India",Mahapatra,Banerjee,Agarwal told on "An ethical change at the banking sector after liberalisation".

Debesh Bhowmik delivered on "Fiscal reform in India:Convergence and Co-integration".
The abstract is given below.

FISCAL REFORM IN INDIA : CONVERGENCE AND COINTEGRATION

Dr. Debesh Bhowmik

(International Institute for Development Studies, Kolkata

and Executive member, Bengal Economic Association)

debeshbhowmik@rediffmail.com

JEL-E62, H60, H62, G18

Keywords-Fiscal deficit, fiscal convergence, co-integration

Abstract

India is confronted with a high degree of fiscal deficit as percent of GDP since the planning period. The semilog linear trend line model states that the fiscal deficit of India has been declining marginally at the rate of 1.45% per year from 1990-91 to 2012-13 which was found statistically significant. We can regress the series nonlinearly as given below,

X=е^{(0.9839-t2.182)}

R²=0.253  , DW=1.3287, t values of two constants are 8.64 and -2.182 which are statistically significant.

India is structurally a fiscal deficit country and she needs fiscal convergence. This paper tries to test fiscal convergence especially for fiscal deficit and debt/GDP of Indian states during reform period from 1990-91 to 2011-12.It also tries to find out the co-integration test for fiscal deficit in India.

Following Sala-i-Martin (1996),the tests signify that the fiscal deficits of Indian States during 1997-98-2011-12 showed Beta divergence which was statistically significant but it satisfied sigma convergence hypothesis showing insignificant result. The test of Beta convergence of debt/SDP of all states during 1997-98-2011-12 confirmed insignificant convergence hypothesis and sigma convergence hypothesis showed divergent and insignificant.

To test co-integration of fiscal deficit , we assumed GDP growth rate, inflation rate, money supply growth rate, current account deficit, non-developmental expenditure, government liabilities, and revenue deficit as the co-integrating variables. The Engle and Granger (1987) test of co-integration suggested that the variables are co-integrated in the order of (1,1) since ADF statistic is significant. The t test for growth rate, non-developmental expenditure ,government liabilities(debt) and revenue deficit showed significant result in the long run equilibrium model.

The Error Correction Model was found statistically significant where t values of the coefficients of changes of growth rate and revenue deficit showed statistically significant. The same results were found in the co-integration test in terms of logarithm model.

Lastly, FRBM should include the recommendations of 13^th Finance Commission, provide for suitable strategies for coping with short run fluctuations, set up fiscal council to monitor and review of fiscal consolidation of states and continue to increase transparency of fiscal policy.

Therefore, India needs fiscal convergence immediately including fiscal consolidation and fiscal federalism of states otherwise differential state and centre fiscal policies would destabilize balance of payment equilibrium mechanism and would face asymmetric shocks of exchange rate, current account balance, inflation rate , foreign capital inflows and GDP growth rate and all those variables might worse the fiscal deficit otherwise the ineffectiveness of FRBMA would continue to exist.