Author: Rajiv Kumar, ICRIER

If the joint committee established to regulate the financial sector threatens to erode the credibility and autonomy of the Reserve Bank of India, the Multi-Commodity Exchange-Stock Exchange’s (MCX-SX) appeal against the Securities and Exchange Board of India (SEBI) should be seen as an attempt to undo possible regulatory capture. The MCX-SX asserts it has fulfilled all the SEBI conditions for conducting business in equities and other instruments.

Financial sector regulation has been in the news recently, and not for the right reasons. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

The Reserve Bank of India (RBI) has acted according to expectations in attempting to restrain inflationary concerns and sustain gross domestic product (GDP) growth rate by freeing up investment demand. I doubt it is possible to argue against the RBI moving to a tighter monetary policy stance in the given circumstances. But in its latest move, the RBI has underestimated the inflationary risks and not acted strongly enough in a situation where it faces substantially greater pressure on liquidity management and where global commodity prices could be rather volatile, and possibly move upwards. The RBI should have set a lower growth rate target.

The RBI projects GDP growth rate for 2010-11 at 8 per cent with the possibility of an increase. But the RBI has overlooked some major risks to GDP growth. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

When discussing the potential crisis in Indian agriculture, some point at the archaic laws that govern land lease and sales and others at the continuing ban on inter-state movement of agricultural produce as major impediment to the modernisation of the sector.

These are surely valid issues, but the way to overcome these constraints is to facilitate the entry of private, cooperative or commercial investors in any segment of agriculture. These investors will generate the impulses to change the ground realities of archaic laws, the ban on inter-state movement, the tyranny of petty babudom or the dysfunctional working of the entire range of service providers who see their mandate not as providing a particular service but as a licence for generating rents. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

The budget season in India, with its unique hoopla and hype, is over. One of the last substantive events on the Budget was a seminar which brought together heads of the five leading Delhi-based think tanks to comment on the Budget’s impact on India’s economic and political prospects. While the quality of this year’s seminar was certainly comparable internationally, unlike previous years, there was a lack of unanimity among the panelists on the quality of the Budget.

The Budget drew acclaim for showing the Indian government’s commitment to fiscal rectitude and for making subsidies more transparent by not treating them as off-budget items in future. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

Last week I went back to Seoul after 26 years. The city is transformed and so is the economy. In 1984, when I visited the export processing zones, Masan and Iri contributed at least 60 per cent of total exports from South Korea. Posco had been established as a public sector company to take on established global giants and out-competed all of them despite having to import 100 per cent of its raw materials by relying on latest technology, economies of scale and above all, sheer hard work and dedication. And, at the same time, Korea was reaching full employment levels by furiously expanding labour intensive exports.

The question arose in my mind that if Korea could successfully combine the latest technology with large-scale employment generation, could India do it as well? Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

As expected, the Reserve Bank of India (RBI) signalled a tightening of its policy stance on 29 January. Given the huge liquidity overhang, the cash reserve ratio was raised by 75 basis points. The repo and the reverse repo rates were left unchanged.

With the Wholesale Price Index threatening to get into double digits, RBI was justified to act decisively to prevent inflationary expectations from becoming entrenched. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

Last week Ratan Tata was reported to have said that the Investment Commission (IC), which he headed, should be wound up principally because of lack of follow-up on its recommendations. The commerce and industry minister was reported as saying that the government is likely to announce a new manufacturing policy by the end of March, and that in his view the share of the manufacturing sector in India’s gross domestic product should increase from the present 16 per cent to 25 per cent. Bravo!

But does India really need another brand new policy for the manufacturing sector to push up its growth rate? Read the rest of this entry »

Author: Rajiv Kumar, ICRIER, India

The rapid and sustained growth of manufacturing is a necessary condition for not only generating the required employment for our young workforce, but also for modernizing our society and eliminating the dualism—stark differences between the organized and unorganized sector—that currently characterizes our economy. Too much reliance on financial and information technology-enabled services could actually produce the opposite results by creating enclaves and exacerbating the dualism.

So this objective of accelerating the growth of manufacturing, increasing its share in India’s gross domestic product (GDP) and eliminating the dualism must form one of the cornerstones of our economic policy. Let me note right away that it is very difficult to achieve a consensus on any policy objective in our country Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

China’s manufacturing boom and export surge is in large part a result of the subsidization of producers through cheap capital, low wages and disciplined labour, combined with the latest technology brought in by foreign direct investment. Additionally, the role of the Chinese armed forces and local governments must be mentioned. The People’s Liberation Army (PLA) regularly places orders on emerging domestic enterprises to generate economies of scale and be globally competitive. They also transfer technology to these firms. Local governments acquire land for both domestic and foreign enterprises and often contribute the proceeds as equity capital, thereby becoming partners and assuring the investors against any future political risk.

Can India follow the same model? Clearly not in its entirety. However, the land acquisition law, inherited from colonial days, can be immediately junked and replaced with one that enables our farmers to have a direct stake in the venture for which the land was purchased directly by the entrepreneur. Read the rest of this entry »

Author: Rajiv Kumar

I write this from a freezing Beijing where I am ensconced in a well-heated deluxe room of the Lakeview Hotel at Peking University. The campus, which I had first visited in 1996, has been transformed since: It has reportedly received generous capital infusions of at least $100 million on several occasions during the last 15 years. I met a number of senior foreign academics who are attached to Peking and Tsinghua universities, whose infrastructure and quality of faculty are improving continuously. As an academic, I admit to feeling most envious of my Chinese counterparts.

But the real bonus of being here has been to find an answer to the question, how is China able to flood global markets with cheap exports without any evident infringement of WTO norms? The related issue is China’s ability to push up investment levels to historically unprecedented levels. These investment levels have been used to expand the manufacturing base, and China has emerged as the second largest exporter after Germany. It is building up huge modern infrastructure capacities, which some would argue may be relatively overdeveloped, given China’s current income levels. Read the rest of this entry »

Author: Rajiv Kumar

There is currently an air of expectation about India’s future prospects both within the country and even more so abroad. We are surely on the move. The new century, it is said, will see India emerge as a global player because of its structural advantages.

Some of the major ones are, for example, a young population with its promise of an expanding workforce Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

At a recent India-China book launch, where human resource development minister Kapil Sibal was present, I made it a point to highlight the comparative picture between India and China in the education sector. This is a crucial sector for emerging economies attempting to achieve inclusive and rapid growth. Moreover, as several recent studies have brought out, returns on skill formation and higher education, which are already substantial, continue to rise as the world increasingly takes on the attributes of a knowledge economy. By the way, the book by Mohan Guruswamy and Zorawar Daulet Singh titled Chasing the Dragon is well worth a read for all those interested in finding out the distance we have to cover to catch up with China. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

After a long time, the Indian market has begun to under perform the other emerging markets. On days when emerging and other Asian markets have been gaining sharply, our indices have been witnessing selling pressure.

Are we going to enter a phase of relative underperformance due to our own domestic issues, and secondly, is the market running ahead of valuations? One of the major reasons for the underperformance in the past week was a sharp decline in stocks from the telecom sector that came under attack. Read the rest of this entry »

Author: Rajiv Kumar

The Pittsburgh Summit has clearly pronounced that ‘Today, we designated the G-20 as the premier forum for our international economic cooperation.’

This should normally imply the demise of G8, which has so far been the premier informal forum for global governance. It seems, however, that G8 will continue to function, albeit economic issues may be formally off its agenda, which could hen­ceforth be more focused on geo-strategic and political issues. This will result in a two-track global governance architecture, which, in my view, does not really work.

Read the rest of this entry »

Author: Rajiv Kumar

Security hawks, the media’s foreign policy experts and the political class had a field day after July’s Indo-Pakistani joint statement. Particularly for the Bharatiya Janata Party (BJP), whose astute leader Atal Bihari Vajpayee once took the boldest of steps to liberate India from its Pakistan obsession, nationalism seems confined to overtly displaying our superiority over a smaller neighbour, one fighting with its back to the wall against destabilising forces. Good foreign policy, however, has to be more nuanced so that our long-term national interests are served.

Read the rest of this entry »