Economics Demystified

Amid rising concerns over increasing China’s influence in the Asia Pacific region, India’s decision to withdraw from Regional Comprehensive Economic Partnership (RCEP) over “inadequate” protection against surges in imports, particularly from China and various unresolved “outstanding issues” looks wise in the present scenario. However, this protectionist mind-set is unsustainable in long run and India must do away with its defensive attitude and instead, work on export promotion strategies and creating globally competitive sectors. Trade blocs are believed to have substantial “trade creation” effects by removing trade barriers and enabling free trade between participating countries. The member nations in such free trade agreements (FTAs) benefit through greater economic integration, lower tariffs, better trading opportunities, increased exports, economies of scale, higher competition and improved choice with lower prices for customers. Such pacts facilitate trade by letting companies ...

With current CPI inflation target of 4% due for review in March 2021, there is a growing clamour to scrap the current “Flexible Inflation Targeting (FIT)” regime. Nonetheless, instead of a sole mandate of retail Inflation as nominal anchor of monetary policy, some dual mandate seems worth considering, where along with CPI headline Inflation, some other anchors such as core inflation, nominal GDP or employment can be included. Going forward, strong monetary policy transmission, institutional capacity to forecast inflation using sophisticated econometric models and independent monetary policy without fiscal dominance are perquisites for an effective FIT regime. Inflation hurts everyone in the country from households to firms. Even moderately high inflation is bad for economy as a whole; it erodes savings and brings uncertainty to the growth and investment climate. Keeping this in mind, Inflation targeting was adopted as the primary objective of monetary policy in 2015-16 to ensure low ...

With GDP numbers plunging on one hand and equity markets soaring to new heights on the other, fears are developing over a K-shaped recovery that favours wealthy, with upper fork of letter “K” being the stock market and lower fork is the real economy, and the two being clearly divorced from each other. However, a well-directed financial stimulus can go a long way to change the alphabet of recovery from “K” to “V”. Indian economy is on the verge of the worst economic collapse since the lockdown was announced in late March. More than 75 lakh Indians have caught infection with hundreds of them dying every day. On economic front, GDP numbers are contracting, business activity and corporate profits has been severely squeezed with private consumption and investment still in doldrums. Yet stocks market remains bullish and keeps on climbing up. It seems as equity market is clearly disconnected from the real economy. It was in the month of March when Indian stock market plunged and touched n...

Centre’s decision to invoke “Force Majeure” clause for non-payment of State’s due GST compensation for FY 2020-21 is morally unacceptable. The two borrowing options that places the onus of extra borrowing on states to compensate for the revenue shortfalls is not only unconstitutional under 101st constitutional amendment Act, 2016 but also a clear blow to the India’s federal structure in future, going ahead. The experience from the last six months in the way states are handling the pandemic clearly indicates that they are truly “ laboratories of democracy ” as paraphrased by former U.S. Supreme Court Justice Louis Brandeis.   However, the constitutionally defined federalism in India is “quasi federal” in nature with existence of strong unitary bias and asymmetry in the way it works. Be its recent revoking of Article 370 by division of Jammu and Kashmir into two Union Territories without securing State government’s consent or recent passage of the three controversial bills on agric...

As pandemic devastates lives and livelihoods, India is heading towards a disastrous “stagflationary” phase. However, bringing in some key structural reforms remains a silver lining in this unprecedented times, going ahead. India has confirmed   38 lakh COVID-19 cases so far with more than 80000 infections reported daily, making it the world’s third-worst-hit country after US and Brazil. While government deserves an applaud for achieving a low mortality rate of less than 2%, but, in its effort to control rapidly rising infections is imposing fresh lockdowns with some states even observing night curfews and weekend lockdowns.   Hence, as an aftermath of lockdowns and new social distancing norms, economy is gradually getting pushed into state of stagnating growth and accelerating prices, formally known as stagflation. Although, high inflation is seldom accompanied by a period of low growth as typically, a slowing economy would reduce the demand for goods and services, thereby d...

Government’s policy of MSP led procurement may not prove to be a sustainable solution to the growing woes of the agricultural sector. In view of strengthening of JAM trinity, along with direct cash transfers, other alternatives like Price Deficiency payments (PDP) can prove to be more effective in ameliorating farming distress. However, its success will largely depend on how well the states implement the reforms related to recently passed ordinances on APMC mandis, contract farming and Essential Commodities Act. Agriculture in India accounts for about 50% of the workforce. However, it is the farmer that is always the worst affected section from any economic shock. Be its government announcement of demonetisation in 2016 or latest pandemic outbreak, farmers have truly borne the brunt of such jolts. Further, they continue to suffer from vagaries of nature – heavy monsoon, drought, and pest attack leading to massive “sunk cost”; thereby pushing them with no alternative means to survive ...