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.

INDIA NEEDS FISCAL CONVERGENCE

INDIA NEEDS FISCAL CONVERGENCE - Dr.Debesh Bhowmik

International Journal of Multidisciplinary Research,Vol-I,Issue-4,July 2012.,20-25

Summary.

India  is structurally a fiscal deficit country.Some states crossed more than 10% of GDP as fiscal deficit.There is no convergence of fiscal deficit of the states.Very less progress had been done during the planning period to reduce fiscal deficit.The semilog linear trend line said that India reduced fiscal deficit at the rate of 1.45% per year during 1990-91-2012-13.The Beta and Sigma hypothesis tests confirmed that the states' fiscal deficit suffers from convergence.That's why fiscal policy destabilised BOP equilibrium mechanism,face asymmetric shocks of exchange rate,current account balance,inflation rate, and foreign capital inflows. 

AN INTRODUCTION TO FOOD SECURITY AND CLIMATE CHANGE

An Introduction to Food Food Security and Climate Change-Debesh Bhowmik
Edited Volume-FOOD SECURITY IN INDIA-by Biswajit Chatterjee and Asim Kumar Karmakar
(Regal Publication,NewDelhi,2012,Rs1880/-,H.B.)

This volume contains 21 articles presented and selected from the seminar on Food Security in Netaji Nagar College,Kolkata,organised by Bengal Economic Association in 2010.
The contributors are emminent scholars and economists like Prof.Biswajit Chatterjee,Prof.Raj Kumar Sen,Prof.Sb Ranjan Misra,Dr.Pranab Kumar Chattapadyaya,Dr.Dhirendra Nath Konar,Dr.Joydeb Sarkhel,Debes Mukhopadyaya,Dr.Asim Karmakar,Dr.Purba Chattpadhyaya,Dr.Subir Mukhopadhyaya,Dr.Dhiraj Kumar Bandopadhyaya,Dr.Debesh Bhowmik,,Dr.Srijit Chowdhury,Anath Bandhu Mukherjee,Debjani Roy,Dr.Suvrangshu Pan,Ramanuj Goswami,Suhas Roy,Dr.Swapan Kumar Roy,Dr.Biswanath Mandal,Anusuya Kar,Bhajan Chandra Barman,Tapan Purkait.

This volume covers wide range of cause of food insecurity, problem of food distribution,management of food food security,nutrition,right to food,private market on food,food security bill,water crisis,climate change causes food insecurity etc with some recommendations of policies.

I have produced the effects of climate change on the security of food vis-a-vis NAC report on food security.

In brief,my paper summarises that World Food Summit (1996) defined food security as “when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life” .It has three components (a) availability of food in the market; (b) access to food through adequate purchasing power; and (c) absorption of food in the body .Food security includes  (1) the ready availability of nutritionally adequate and safe foods, and (2) an assured ability to acquire acceptable foods in socially acceptable ways.  Famine and hunger are both rooted in food insecurity. Food insecurity can be categorized as either chronic or transitory. Chronic food insecurity translates into a high degree of vulnerability to famine and hunger; ensuring food security presupposes elimination of that vulnerability. Food security is a complex sustainable development issue, linked to health through malnutrition, but also to sustainable economic development, environment, and trade.

Food security and climate change are deeply interconnected .The changing temperature and rainfall patterns and increasing carbon dioxide level will undoubtedly have important effects on global agriculture and thus on food security. One long-term field study documented  a 15% decrease in yield for every 1 °C increase in mean temperature.The recent IPCC Fourth Assessment Report indicates that climate change will have significant impact on crop production and water management systems in coming decades.

Environmental Protection Agency (1989), The study of Rosenberg and Crosson (1991), Reilly, Hohmann, Kane(1994), US Department of Agriculture(1995), (Reilly,2001), Nordhaus and Boyer (2000), Tol(2002), Hitz and Smith(2004), Parry and Fischer(1995), The Stern Report of UK Government(2006), and  Inter-governmental Panel on Climate Change (2007) concluded from their researches  that there is a inverse association between yield of agriculture and the temperature.

Indian climate is dominated by the south-west monsoon, which brings most of the region’s precipitation.  Agricultural productivity is sensitive to two broad classes of climate-induced effects—(1) direct effects from changes in temperature, precipitation, or carbon dioxide concentrations, and (2) indirect effects through changes in soil moisture and the distribution and frequency of infestation by pests and diseases. Rice and wheat yields could decline considerably with climatic changes.

Sanghi, Mendelsohn, and Dinar (1998) calculated that a 2 °C rise in mean temperature and a 7% increase in mean precipitation would reduce net revenues by 12.3% for India as a whole. Agriculture in the coastal regions of Gujarat, Maharashtra, and Karnataka is found to be the most negatively affected. Small losses are also indicated for the major food-grain producing regions of Punjab, Haryana, and western Uttar Pradesh. On the other hand, West Bengal, Orissa, and Andhra Pradesh are predicted to benefit – to a small extent – from warming.

Diversity farming is the single most important modern technology to achieve food security in a changing climate.The International Assessment of Agricultural Science and Technology for Development (IAASTD)  adopted agriculture by

“- changing varieties/ species to fit more appropriately to the changing thermal and/or hydrological conditions;

- changing timing of irrigation and adjusting nutrient management;

- applying water-conserving technologies and promoting agro biodiversity for increased resilience of the agricultural systems;

- altering timing or location of cropping activities and the diversification of agriculture.”

UPA-II government  proposed Food Security Act which ensure 35 kg of rice and wheat to all the Below Poverty Line (BPL) households in India at Rs 3 per kg. If the government were to universalise PDS in the fiscal 2010-11, keeping 80 per cent coverage and BPL-CIP, the total annual food subsidy required (Budget Estimate 2010-11) would be Rs 97,815.9 crore (1.48 per cent of GDP). Since the present food subsidy stands at 0.84 per cent of the GDP, the additional annual food subsidy required would be around 0.64 per cent. Even if we calculate using Antyodaya-CIP and 100 per cent coverage, the total annual food subsidy required (BE 2010-11) would be Rs 147,500 crore (2.23 per cent of GDP). The additional food subsidy required as a share of GDP, even in this estimate, would not go beyond 1.39 per cent.

The National Advisory Council recommended an increase of 10 kgs per household.  It proposes that all ‘socially vulnerable groups’ including SC/STs would receive 35 kgs of food grains per household at Rs. 3 per kg in the districts/blocks. Others (not defined) would be guaranteed 25 kgs ‘at an appropriate price’. The NAC states that in urban areas, eligible households (again identified by undefined planning commission criteria) would get 35 kgs of food grains at Rs. 3 per kg. The NAC wants to extend ‘comprehensive nutrition support schemes for infants, pre-school children, school children, welfare hostel students, adolescent girls, pregnant women, street-children, homeless, the aged and infirm, differently-abled, those living with leprosy, TB and HIV/AIDS etc.,’. It also  aims to work towards ‘measures for enhancing agriculture production, PDS and procurement reforms, ICDS reforms and maternity benefits, community kitchens and destitute feeding’.

THE NEXUS BETWEEN CAPITAL FLOWS AND GROWTH

THE NEXUS BETWEEN CAPITAL FLOWS AND GROWTH - Dr.DEBESH BHOWMIK

International Journal of Multidisciplinary Research - Vol-I,Issue-3,June 2012,pp1-6

This paper  concluded that growth is positively related with FDI in a single equation technique during 1991-92-2009-10 but FDI is inversely related with growth and portfolio is positively related with growth in multiple regression analysis.India's FDI is determined by current and capital account balances and REER positively.Irrespective of that role of the governance in applying capital flows in different stages of development is vital for consideration towards management of capital flows.India's FDI inflows  has been increasing at the rate 22.95% per year during the reform period.The question arises in the liberalisation process of capital flows where structural imbalance of India's BOP destabilises India's trade and finance from which external value of rupee is determined.

UPA-II,India Government spent 3 years.

UPA-II,India Government spent 3 years.

India could not reach 9% growth rate since 2009-2010,but it is below 8% from second quarter of 2010-11.Stock market performance is down swing, it has dwindled 23.1% from the peak level of November 2010.Fiscal deficit as percent of GDP has gone up from 4.9% in 2010-11 to 5.9% in 2011-12 but likely to drop down to 5.1% in 2012-13.Still in April,2012,it is 8%,so no sign of improvement.The consumption would rise to 4% of GDP in 2011-12 in comparison to 2.7% in previous year.Rupee Dollar rate has been falling to at a floor level.But,it is said from govt.level that it is the effect of Euro crisis.Moreover, Government of India is defamed with scams and protest against corruptions although it has enlighted with reform measures which highlighted with higher privatization and liberalisation drives.

Presidential Election in India

Presidential Election in India

In the forthcoming presidential election in India,a proposal was placed in favour of finance minister Pranab Mukherjee because of Congress(I)'s sure goal taking all parties cooperation against BJP.One or two years ago,the name of PM was raised,but no body ,of late , propose such name from the side of Congress(I).Its an suspicious matter.Secondly,somebody were thinking the name of Kalam-the former President-as a general consensus.On the other hand,the possible third party coalition may think another name as President.One candidate as already proposed and he is former speaker Somnath Chatterjee.
          Now,the question is why UPA(II) does not confirm success their name as President?The role of BJP is important because its success in past few election result.Even,this party,I hope that,will not be on the general consensus.Same is applicable to left parties.TMC's role is unpredictable.So,no preassumed result is yet to be declared now,until and unless,the nomination is over.
            Economic implication is favourable to Pranab Mukherjee because of his success in securing post of FM,but the name of PM is not favourable as FM if we analyse the party's role.On the opposite side,if third front is visible and Somnath Chatterjee is selected for nomination ,then the election for President will be crucial for the voters as well as political mission.  

A NEW EU LEADERSHIP IN A DILEMMA

 

A NEW EU LEADERSHIP IN A DILEMMA

It is miraculous that Sarkozy was defeated by the socialist leader Hollande in the France election .As a result of this the Markel-Sarkozy move against the Euro Crisis may be delayed or may be move on other direction because one remarks is very much important that the stimulus package of EU debt crisis may be suspended for which Greece, France, Ireland, Spain even France will suffer and common fiscal policy may be left unimplemented. Besides, the new Stability and Growth Pact will be problematic. On the other hand, if stimulus package is suspended the agitation in Greece may revamp and the destabilization of economy will continue. It is expected that how the socialist leader-Hollande will co-operate with Markel of Germany or with EU nations, how they will co-exist regarding the solution for Euro crisis, how they will exchange their views on the criteria of Maastricht treaty , are really difficult situation to handle with. If the proper understanding on Euro crisis is not met up, the single currency Euro may disappear and the fragmentation of EU on monetary integration appears to be accelerated. International monetary system will be turmoil and regional currency system will get a shock and regional trade integration as well as regional monetary integration will fail to contribute in the world monetary order.