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ACKNOWLEDGEMENT
during the project, their help, it would have been extremely difficult for
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Regd.No 10906034
ABSTRACT:-
In to four sectors,
(b) Manufacturing,
balances and also relation between money, output, prices and balance of payments.
model also tries to link economic growth with poverty reduction. Annual time series
data for the period 1978-79 to 2002-03 are used for this purpose. Three-stage least
squares method is used to estimate the model. The model is validated for its in-
sample forecasting ability. A few counter factual policy simulations relating to public
trend analysis has shown slowing down of the economy during ‘90s and thereafter.
infrastructure and services in the Indian economy. The estimated model indicated
significant crowding-in effect between private and public sector investment in all the
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shows substantial increase in private investment and thereby in this sector. Further,
due to increase in absorption, real output in the manufacturing and services sectors
also seem to increase, which sets-in motion all other macroeconomic changes. Due
to rise in sectoral (and aggregate) output, price level and money supply seem to
decline in the short-run. Due to sustained nature of policy change, the impacts get
strengthened over time and benefit the economy. A 10% sustained increase in public
sector investment in infrastructure, which is less than 0.4% of GDP, can accelerate
macro economic growth by nearly 2.5% without causing any inflation. Further, this
increase in income will lead to nearly 1% reduction in poverty in India. This assures
the potential for achieving the much debated 10% aggregate real GDP growth in the
Indian economy.
1. Introduction
There has been lot of public debate in recent months, particularly after the
(a) Need for achieving 10% GDP growth and its feasibility,
(b) The role and potential of infrastructure sector in achieving the desired GDP
growth
(c) Ways and means of raising resources for public investment in infrastructure
sector and particularly the use of accumulated foreign capital inflows for this
purpose. The tool of counter factual policy simulation, using a macro econometric
seeking to explain the behaviour of the key economic variables in the economy at
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analysis. The latter objective is the focus of this study. Fiscal and monetary policies
are the foremost policies that are virtually analysed in macro econometric models
from their inception. The tool of an aggregative, structural, macro econometric model
India. Before we give details of selected model, its estimation etc., it would be useful
to briefly look at literature on this topic pertaining to India. A detailed review of macro
econometric models built for Indian economy is beyond the scope. Since we analyse
the economy from a monetary framework, it would be worthwhile to look into how
Modelling monetary sector and its links with fiscal and external sectors became a
challenging task in India after 1970s. Modelling money and monetary policy for the
determination of real output and price level has increased considerably in India (e.g.
Rangarajan and Arif, 1990; Rangarajan and Mohanty 1997). In these models, stock
The price level is determined by money supply and production. The output supply is
determined as a function of real money balances and net capital stock. Some
models attempt to link the real, monetary and fiscal sectors. Models by Krishnamurty
and Pandit (1985), Rangarajan and Arif (1990), and Soumya and Murty (2005)
exhibit this form of linking. Modelling the external sector was not a major concern in
the earlier models, because of restrictions on trade. But, in the recent years, several
models emerged with detailed emphasis on the external sector and it’s interlinks with
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Krishnamurty and Pandit (1996) modelled the merchandise trade flows in supply
behaviour.
emerging issue in recent years since the inception of stabilization program. These
issues were modelled by Rangarajan and Mohanty (1997). It is postulated that fiscal
deficit increases the absorption in the economy relative to output and the output
effect of deficit.
Indian economy has been witnessing a phenomenal growth since the last decade.
The country is still holding its ground in the midst of the current global financial crisis.
In fact, global investment firm, Moody’s, says that driven by renewed growth in India
and China, the world economy is beginning to recover from the one of the worst
The growth in real Gross Domestic Product (GDP) at factor cost stood at 6.7 per
cent in 2008-09. While the sector-wise growth of GDP in agriculture, forestry and
fishing was at 1.6 per cent in 2008-09, industry witnessed growth to 3.9 per cent of
The Prime Minister, Dr Manmohan Singh, on August 15, 2009, in his address to the
nation on its 63rd Independence Day, said that Government will take every possible
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The World Bank has projected an 8 per cent growth for India in 2010, which will
make it the fastest-growing economy for the first time; overtaking China’s expected
ports and encouraging data from a number of key manufacturing segments, such as
steel and cement, indicate that downturn has bottomed out and highlight Indian
Composite Leading Index (CLI), UBS' Lead Economic Indicator (LEI) and ABN Amro'
Purchasing Managers' Index (PMI), too bear out this optimism in Indian economy.
annual growth rate of 6.8 per cent in July 2009, according to Central Statistical
Organisation.
Significantly, among the major economies in the Asia-Pacific region, India's private
domestic consumption as share of GDP, at 57 per cent in 2008, was the highest,
Meanwhile, foreign institutional investors (FIIs) turned net buyers in Indian market in
2009. FIIs inflows into Indian equity markets have touched US$ 10 billion in the April
Foreign direct investments (FDI) into India went up from US$ 25.1 billion in 2007 to
US$ 46.5 billion in 2008, achieving a 85.1 per cent growth in FDI flows, the highest
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According to Asian Development Bank's (ADB) 'Asia Capital Markets Monitor' report,
Indian equity market has emerged as the third biggest after China and Hong Kong in
the emerging Asian region, with a market capitalisation of nearly US$ 600 billion.
Indian investors have emerged as the most optimistic group in Asia, according to the
ING. As per the survey, around 84 per cent of the Indian respondents expect the
With foreign assets growing by more than 100 per cent annually in recent years,
business markets and India is rapidly staking a claim to being a true global business
power, according to a survey by the Indian School of Business and the Vale
economy in 2009, the Reserve Bank of India (RBI) said overall business sentiment
was slated for a sharp improvement from that in the April-June 2009 quarter.
India will soon emerge as the preferred destinations for foreign investors, revealed
The country's foreign exchange reserves rose by US$ 1.28 billion to touch US$
277.64 billion for the week ended September 4, 2009, according to figures released
Net inflows through various non-resident Indians (NRIs) deposits surged from US$
179 million in 2007-08 to US$ 3,999 million in 2008-09, according to the RBI. The
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most recent World Bank update on migration and remittances reveals that the
source of foreign exchange. India, along with China and Mexico, retained its position
2008.
FDI inflows into India in April-May 2009-10 have surged by 13 per cent at US$ 4.2
billion as against the previous two months driven by recovery in the global financial
markets. Cumulative FDI in India from April 2000 to March 2009 stood at about US$
90 billion.
FIIs inflows into the Indian equity markets have touched US$ 10 billion in the April to
Venture Capital firms invested US$ 117 million over 27 deals in India during the six
The private equity (PE) investment into the country reached US$ 1.03 billion during
The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on
January 2, 2009. Bank credit touched 24 per cent (y-o-y) on January 2, 2009, as
Since October 2008, the RBI has cut the cash reserve ratio (CRR) and the repo rate
by 400 basis points each. Also, the reverse repo rate has been lowered by 200 basis
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points. Till April 7, 2009, the CRR had further been lowered by 50 basis points, while
the repo and reverse repo rates have been lowered by 150 basis points each.
Exports from special economic zones (SEZs) rose 33 per cent during the year to
end-March 2009. Exports from such tax-free manufacturing hubs totalled US$ 18.16
India Inc's order book has more than doubled to an all-time high of US$ 15.32 billion
in the second quarter of the current financial year, compared to the first quarter. On a
Advance tax collections for the second quarter of the current financial year (2009-10)
The domestic mutual fund industry registered a moderate growth of 5 per cent in its
assets under management (AUM) in August 2009 at US$ 15,702, due to good
India exported a total of 230,000 cars, vans, sport utility vehicles (SUVs) and trucks
between January and July 2009, a growth of 18 per cent owing to its liberal
investment policies and high quality manufacturing that stems from its growing
India's gems and jewellery exports regained momentum and aggregated to US$ 1.9
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The Indian growth story is spreading to the rural and semi-urban areas as well. The
next phase of growth is expected to come from rural markets with rural India
accounting for almost half of the domestic retail market, valued over US$ 300 billion.
Rural India is set to witness an economic boom, with per capita income having
grown by 50 per cent over the last 10 years, mainly on account of rising commodity
Per capita income of Indian individuals stood at US$ 773.54 in 2008-09, according to
Central Statistical Organisation data. The per capita income in India stood at US$
687.03 in 2007-08 and has risen by over one-third from US$ 536.79 in 2005-06 to
The total Merger and acquisition (M&A) deals registered during the first seven
months of this year stand at 158 with a value of US$ 5.91 billion, while PE deals
stand at 114, totalling a value of US$ 4.89 billion, according to consulting firm, Grant
Thornton.
Investments in the Indian stock market through participatory notes (PNs) crossed
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Sustainable energy investment in India went up to US$ 3.7 billion in 2008, up 12 per
cent since 2007, according a report titled 'Global Trends in Sustainable Energy
Investment 2009'.
Advantage India
According to the World Fact Book, India is among the world's youngest nations with
Brazil, Russia, India and China—countries, India is projected to stay the youngest
with its working-age population estimated to rise to 70 per cent of the total
demographic by 2030, the largest in the world. India will see 70 million new entrants
India has the second largest area of arable land in the world, making it one of the
world's largest food producers—over 200 million tonnes of food grains are produced
annually. India is the world's largest producer of milk (100 million tonnes per annum),
sugarcane (315 million tonnes per annum) and tea (930 million kg per annum) and
With the largest number of listed companies - 10,000 across 23 stock exchanges,
India's healthy banking system with a network of 70,000 branches is among the
market will be the world's fifth largest (from twelfth) in the world by 2025 and India's
middle class will swell by over ten times from its current size of 50 million to 583
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India, which recorded production of 22.14 million tonne of steel during April-August
2009, is likely to emerge as the world's third largest steel producer in the current
year.
The Indian stock markets have risen to be amongst the best performers globally
India has reclaimed its position as the most attractive destination for global retailers
despite the downturn, according to the Global Retail Development Index (GRDI)
Growth potential
According to the CII Ernst & Young report titled 'India 2012: Telecom growth
continues,' India's telecom services industry revenues are projected to reach US$ 54
billion in 2012, up from US$ 31 billion in 2008. The Indian telecom industry
registered the highest number of subscriber additions at 15.84 million in March 2009,
A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian
consumer market is likely to grow four times by 2025, which is currently valued at
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India ranks among the top 12 producers of manufacturing value added (MVA)—
witnessing an increase of 12.3 per cent in its MVA output in 2005-07 as against 6.9
Organisation (UNIDO).
In textiles, the country is ranked fourth, while in electrical machinery and apparatus it
is ranked fifth. It holds sixth position in the basic metals category; seventh in
petroleum products and nuclear fuel; twelfth in machinery and equipment and motor
vehicles.
security, Reliance Industries (RIL) has commenced natural gas production from its
India has a market value of US$ 270.98 billion in low-carbon and environmental
goods & services (LCEGS). With a 6 per cent share of the US$ 4.32 trillion global
PE players are planning to raise funds for the infrastructure sector. Presently, around
data released by Preqin, a global firm that tracks PE and alternative assets.
Infrastructure, including roads, power, highways, airports, ports and railways, has
emerged as an asset class with long-term growth that can provide relatively stable
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NASSCOM has estimated that the IT-BPO industry will witness an export growth of
4-7 per cent and domestic market growth of 15-18 per cent in 2009-10. Further, it
has projected that around 40,000 students will be absorbed by IT companies this
fiscal.
With the availability of the 3G spectrum, about 275 million Indian subscribers will use
3G-enabled services, and the number of 3G-enabled handsets will reach close to
Main features
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5. To transform India into a major partner and player in the global arena.
Policy focus is on –
2. Allowing the industry freedom and flexibility in responding to market forces and
3. Providing a policy regime that facilitates and fosters growth of Indian industry.
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Policy measures
present, only six industries are under compulsory licensing mainly on account of
environmental, safety and strategic considerations. Similarly, there are only three
industries reserved for the public sector. The lists of industries reserved for the public
sector and of items under compulsory licensing are at Appendix III and IV
respectively.
approval is required for such exempted industries. Amendments are also allowed to
A significantly amended locational policy in tune with the liberalised licensing policy
is in place. No industrial approval is required from the Government for locations not
falling within 25 kms of the periphery of cities having a population of more than one
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million except for those industries where industrial licensing is compulsory. Non-
located within 25 kms of the periphery of cities with more than one million population.
Permission to other industries is granted in such locations only if they are located in
an industrial area so designated prior to 25.7.91. Zoning and land use regulations as
Reservation of items of manufacture exclusively for the small scale sector forms an
important focus of the industrial policy as a measure of protecting this sector. Since
crore are within the small scale and ancillary sector. A differential investment limit
has been adopted since 9th October 2001 for 41 reserved items where the
investment limit upto rupees five crore is prescribed for qualifying as a small scale
unit. The investment limit for tiny units is Rs. 25 lakhs. 749 items are reserved for
manufacture in the small scale sector. All undertakings other than the small scale
manufacture in the small scale sector are required to obtain an industrial licence and
licensing is, however, not applicable to those undertakings operating under 100%
Export Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the
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The general policy and facilities for Foreign Direct Investment as available to foreign
extended some concessions specially for NRIs and overseas corporate bodies
having more than 60% stake by the NRIs. This inter-alia includes (i) NRI/OCB
investment in the real estate and housing sectors upto 100% and (ii) NRI/OCB
NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis
in all activities except for a small negative list. Apart from this, NRI/OCBs are also
scheme.
scheme:
For building up strong electronics industry and with a view to enhancing export,
two schemes viz. Electronic Hardware Technology Park (EHTP) and Software
Technology Park (STP) are in operation. Under EHTP/STP scheme, the inputs are
The Directors of STPs have powers to approved fresh STP/EHTP proposals and
Export Oriented Units. All other application for setting up projects under these
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Department has put in place a liberal and transparent foreign investment regime
where most activities are opened to foreign investment on automatic route without
any limit on the extent of foreign ownership. Some of the recent initiatives taken to
further liberalise the FDI regime, inter alia, include opening up of sectors such as
industry (upto 26%); tea plantation (upto 100% subject to divestment of 26% within
five years to FDI); Encenhancement of FDI limits in private sector banking, allowing
FDI up to 100% under the automatic route for most manufacturing activities in SEZs;
electronic mail and voice mail to 100% foreign investment subject to 26% divestment
condition; etc.
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The Indian economy is the 12th largest in USD exchange rate terms. India is the
second fastest growing economy in the world. India’s GDP has touched US$1.25
trillion. The crossing of Indian GDP over a trillion dollar mark in 2007 puts India in the
elite group of 12 countries with trillion dollar economy. The tremendous growth rate
has coincided with better macroeconomic stability. India has made remarkable
services.
However cause for concern would be this rapid growth has not been an inclusive in
nature, in the sense it has not been accompanied by a just and equitable distribution
of wealth among all sections of the population. This economic growth has been
location specific and sector specific. For e.g. it has not percolated to sectors were
labour is intensive (agriculture) and in states were poverty is acute (Bihar, Orissa,
Though India has the second highest growth rate in the world, its rank in terms of
human development index (which is broadly used has a measure of life expectancy,
adult literacy and standard of living) has gone down to 128 among 177 countries in
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1960-1980 : 3.5%
1980-1990 : 5.4%
1990-2000 : 4.4%
2000-2009 : 6.4%
The contributions of various sectors in the Indian GDP for 1990-1991 are as follows:
Agriculture: - 32%
Industry: - 27%
The contributions of various sectors in the Indian GDP for 2005-2006 are as follows:
Agriculture: - 20%
Industry: - 26%
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The contributions of various sectors in the Indian GDP for 2007-2008 are as follows:
Agriculture: - 17%
Industry: - 29%
It is great news that today the service sector is contributing more than half of the
Indian GDP. It takes India one step closer to the developed economies of the world.
The Indian government is still looking up to improve the GDP of the country and so
several steps have been taken to boost the economy. Policies of FDI, SEZs and NRI
investment have been framed to give a push to the economy and hence the GDP.
Real gross domestic product at factor cost, an indicator of total economic activity,
grew by a moderate 5.7% p.a. during the entire study period 1980-2003. The real
output growth has accelerated from 5.4% during ‘80s to 6.2% during ‘90s. Between
1993-03, the post-liberalization decade, which is also our data period for policy
simulation analysis, the real output has grown at 6% p.a., a slight slowing down in
the economy compared to the ‘90s. Real per capita output (income) also shows
similar trends, after adjustment for population growth. The above aggregate growth
was made possible through differential sectoral growth: Agricultural output grew by
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services have accelerated by about 1-1.25% p.a. This is true with the post 1990
reforms period as well. The rate of growth in the wholesale price index, in other
words, rate of inflation, fluctuated between 6.6-7.8%, which declined to 5.5% during
1993-03. The national income deflator, shows similar trends but at 0.5-1% higher
level. The real GDP share in agriculture fell from 36.4% in ‘80s to 29.1% in ‘90s and
percentage points. The non-agriculture exhibits the opposite pattern. Within the non
agriculture, share of the services sector is the largest, accounting for more than one
third of the GDP. The share has gone-up from 32.3% in ‘80s to 37% in ‘90s and
more recently to 38.8% of the GDP. The GDP share of infrastructure remained
stagnant around 14-15%, although the GDP level has roughly little over doubled.
The GDP share of manufacturing sector improved marginally from 17.6% in ‘80s to
19.4% in ‘90s and even subsequently. Thus, there is a structural shift in production
During 1980-03, real public investment in agriculture and manufacturing sectors has
infrastructure and services sectors grew by 3.9% and 3.7% respectively. These
investment trends are consistent with the production trends discussed above. The
public investment in all sectors put together grew by 2.5% in the study period. In fact,
the public investment growth has decelerated from 4.5% during ‘80s to 2.2% during
‘90s. In the post-liberalization period, the growth is only 1.1%. This is the result of
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certain extent, private investment has substituted for public investment. Private
4.2%, 7%, 5.9% and 6.3% respectively in the entire study period. Private total
investment in all sectors grew by 6.3% in the study period. Between ‘80s and ‘90s,
nearly stagnant or decelerated in the other two sectors. In the post-’93 periods,
except in agriculture, private investment slowed down in all the three other sectors.
Nominal gross domestic savings in the economy has been growing at an average
rate of 16.2% during 1980-’03, which is 0.6% faster than the growth in nominal gross
investment (15.6%). However, both gross domestic savings and investment seem to
have decelerated by about 4% p.a. during the recent decades. These trends indicate
that there has been some disillusionment in the investment climate during post-’93
period in India. The reasons could be fall in demand and recessionary conditions in
role in the growth of the economy. Govt. total expenditure consists of current and
capital expenditures. The nominal total govt. expenditure has decelerated from
can solely be attributed to the deceleration in investment. These trends continue into
1993-03 period as well. Although the nominal govt. direct tax collection has
accelerated, the total revenue seems to have decelerated. Some fiscal prudence has
led to deceleration in the fiscal deficit over the years. In fact, fiscal deficit decelerated
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momentum again during 1993- 03. Money supply grew more or less steadily at about
17% during the study period. Nominal interest rate grew marginally during ‘80s by
0.8% p.a., but dropped significantly since then and the trend continued.
External sector
Real export growth from the country has accelerated rapidly from 4.2% in ‘80s to
12% in ‘90s, with an overall growth of 9.6% p.a. Exports seems to grow even faster
(12.6%) during 1993-03. The unit value of exports, proxy for export price, has
increased slower during ‘80s and ‘90s and slowed-down even further in the recent
Indian rupee (9.4%) against the US$, in addition to rise in unit value of exports.
Despite rupee depreciation, growth in real imports has accelerated very rapidly from
6.3% in ‘80s to 15.3% in ‘90s, mainly due to higher demand. A substantial part of
these imports could be POL imports, which have become essential both as inputs
and final consumption goods. The import growth however seems to have slowed
down to 10.7% during 1993-03. The nominal trade balance, as expected, has been
negative and highly volatile, particularly during the ‘90s and thereafter. The opening-
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points.
2. Education
ensure quality
3.
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4. Health
o Provide clean drinking water for all by 2009 and ensure that there are
no slip-backs
o Reduce malnutrition among children of age group 0-3 to half its present
level
o Reduce anaemia among women and girls by 50% by the end of the
plan
o Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by
2016-17
o Ensure that all children enjoy a safe childhood, without any compulsion
to work
6. Infrastructure
1000 and above (500 in hilly and tribal areas) by 2009, and ensure
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o Provide homestead sites to all by 2012 and step up the pace of house
7. Environment
The ten-year period 1993-94 to 2002-03 is used for the policy simulations.
(a) Sustained 10% increase in public sector real investment in infrastructure sector
It is hypothesised that the govt. will raise the necessary investment resources
through borrowing from commercial banks. In the model therefore, both the
exogenous variables PCFINF and BCG are increased by 0.1 PCFINF each. This
may imply that there is liquidity crunch and the bank credit that is available to
commercial sector will be lesser by the amount borrowed by the govt. for investment
in the infrastructure sector. Such a policy will reduce the reserve bank credit to the
govt. And thereby reserve money and money supply. Changes in money supply will
trigger several other changes in the economy. A sustained 10% increase in public
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real investment in infrastructure8, envisaged as above, has both short- and long-run
Due to the opposite trends in public and private real investments in the agriculture
sector, we got a negative sign for the lagged public investment variable.
Normally, ceteris paribus, this should have meant crowding-out between private and
public investments. But, due to the presence of the ‘public sector resource gap’ and
real interest rate variables, the net effect looks positive between public and private
investments in the Indian agriculture sector as well (like in all the three other sectors)
with the infrastructure sector, both in production and private investment, with a lag.
This latter feature highlights the linkage between the private investment decisions of
the two sectors. Thus, any change in public investment in infrastructure will not only
affect private investment in that sector, with a lag, but also in agriculture and thereby
It can be seen that public investment in infrastructure can affect private investment in
that sector only with a one-year lag. This probably is due to gestation lags and
delays. However, there is another important channel namely the real interest rate,
the coefficient. Thus, in the present case, a 10% increase in public investment in
nominal interest rate fell (0.1%). But, the rate of inflation declined faster, resulting in
a small increase in the real rate of interest. Hence, there was a very small crowding-
out effect on private investment in that year. A similar response was noticed in the
agriculture and services sectors. The aggregate private investment has therefore
decreased negligibly.
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Further, there are other macro economic effects. Due to increased public investment,
govt. expenditure (1.3%) and fiscal deficit (4.3%) will rise. Since the govt. is
envisaged to borrow the required funds from the commercial banks, the govt. may
not require any support from the central bank (RBI). In fact, the RBI credit to govt.
has fallen (0.2%). This results in marginal decline in reserve money, money supply
(0.04%) and prices (0.1%). Due to one-period lag for net capital stock in the
production function for the infrastructure sector, the output also can increase only
economy will increase, thereby increasing total output negligibly (0.02%), mainly due
On the fiscal side also, the impacts in 1993-94 are small, except for govt.
expenditure and fiscal deficit. Higher public investment will increase govt.
expenditure (1.3%). Due to decline in nominal income, there will be a small fall in
revenue from indirect taxes (0.1%) and non-tax revenue (0.1%) of the govt., leaving
a large uncovered fiscal deficit (4.3%). Non-market borrowings that are linked to
nominal income also decline negligibly (0.1%). Demand for Indian exports will
however decline (0.2%), due to rise in relative export price. But, real imports into the
Country will rise (0.5%) due to cheaper import prices and higher absorption. The
Indian rupee appreciates marginally (0.1%) against the US$. As expected, nominal
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In this scenario, we try to compare the earlier simulation results with an alternative
policy option that is very much in recent public debate, viz. Public investment being
financed through the accumulated foreign capital inflows. It can be seen that the
simulation results are similar, particularly in the long-run, with few differences in the
short- and medium-term, for monetary and external sectors. Specifically, when the
required funds for investment are borrowed from the capital inflows, as expected, the
macro economic effects work through the external sector and money supply will
increase via increased RBI credit to govt. and thereby reserve money.
Thus, in 1993-94, the year of the exogenous change, due to govt. Borrowing from
net capital inflows, the balance of payments will rise (1.4%) unlike in the earlier
scenario. This causes the Indian rupee to depreciate rapidly (1.3%) and encourage
exports demand (1.2%) from the country due to fall in relative price of exports.
Equivalently, exports rise due to rise in unit value of exports as well as nominal
exchange rate. Due to Rupee depreciation, real imports into the country will decline
(0.1%) despite higher demand (absorption), i.e. price effect dominating the income
effect. Since exports (as well as unit value of exports) rise faster than imports, the
trade balance will improve (1.4%). This pattern is continued into the future until
exchange rate becomes nearly stagnant and starts falling later. Unlike in the earlier
scenario, money supply seems to increase (0.6%) due to increase in RBI credit to
govt. to finance the investment. The general price level and inflation decline
marginally. The effects on poverty reduction are identical to the earlier scenario. The
long-run effects of the two scenarios are quite similar for all the sectors. Since the
required legal apparatus for the utilization of foreign capital inflows by the govt.
appears not in place yet, probably, it may be easier for the govt. to borrow the
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required funds from the commercial banks by selling the conventional govt. Security
bonds.
Conclusion –
The quantified effects include the allocative and dynamic responses of the chosen
real, fiscal, monetary and external sectors of the Indian economy. The real sector
and services. The sign and magnitude of the effects vary over time- immediate to
long- run.
expected to result in wide spread benefit in the fiscal and monetary sectors of the
economy. Thus, public sector investment in infrastructure sector has the potential to
provide the much-needed push and accelerate the growth process of the Indian
(about Rs. 3500-3800 crores p.a. at 1993-94 prices) will enable the Indian economy
to grow at an additional 2.5% p.a. and achieve the much debated 10% aggregate
real GDP growth per annum in the medium- to long-run. Further, such growth is non-
inflationary and welfare improving through higher govt. revenue and roughly about
1% reduction in poverty. The additional expenditure is less than 0.4% of the GDP
and about 2% of the tax revenue. We believe that such investment is quite feasible
poverty) than that of agriculture and even manufacturing. One important limitation of
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34 | P a g e
REFERENCES:-
http://www.ibef.org/economy/economyoverview.aspx
http://www.dipp.nic.in/evol1.htm
http://www.tradechakra.com/indian-economy/gdp.html
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