WP No.

1/2020

EGROW WORKING PAPER

Growth Recession: J curve of

Institutional Reform
by Arvind Virmani

February 2020

 
 
 
1
 EGROW Foundation Working Papers describe research in progress by the author(s) and are
published to elicit comments and to encourage debate. The views expressed in EGROW Working Papers
are those of the authors and do not necessarily represent the views of the EGROW Foundation, Executive

Growth Recession: J curve of

Institutional Reform
By
Arvind Virmani 1
February 2020

Abstract
This paper analysis the collapse of GDP growth in 2019-20, tracing it to institutional changes
introduced between 2014-2019. Though many of these changes are designed to improve the efficiency,
long term productivity and equitable growth of the economy, they have negative effects in the short
term, which we term the “J -curve of Institutional Change”. Awareness of these potential negative
effects and preemptive policy actions to address then can help minimize them. The paper also offers
policy suggestions on how to address them, now that they have already occurred, along with
suggestions to accelerate growth.

1
I would like to thank Roberto Zagha, Dr Charan Singh, Dr Vishandas and Karan Bhasin for comments on an earlier
version of this paper.

2
 1. Introduction
India’s economic growth (GDPMP at 2011-12 prices) reached a peak of 8.9% in fourth quarter of
2017-18, close to the previous peak of 9.3% in first quarter of 2012-13. Since then the growth rate has
declined steadily for six quarters to reach 4.2% in Q2 of FY 2019-20 (Figure 1). The downward break in
growth during 2019-20, was somewhat surprising as Quarterly (yoy) growth in fourth quarter of 2018-19
at 5.8%, was only marginally below trend. Till Q4 of 2018-19, the decline of 3.1 per cent point in GDP
growth rate, closely mirrored the four-quarter, 2.9 per cent point decline in Growth rate from the
previous peak of 9.0% in 2015-16 Q4 to 6.1% in Q4 of 2016-17. Though some macro-economic analysts
predicted a decline of growth in Q1 of FY2020 and/or H1 of FY 2020, none predicted the extent of the
decline.2 To that extent there was no domestic or external shock like the Global Financial crisis in 2008,
that could be linked directly and obviously to the crisis. This paper explores the underlying causes and
reasons for the GDP growth deceleration, with a view to deriving policy solutions that can reverse the
decline and put GDP growth firmly back on a trend growth of 7.5% to 8%.

Several Institutional reforms were introduced during 2014-15 to 2018-19. One of the most important
institutional changes that have occurred since 2014 is what may be termed the Campaign against “Black
money” or against Corruption. The origin of this campaign was the public & political perception of an
increase in Governmental corruption in Delhi which started in 2009 by filing of a PIL in the Supreme
court by lawyer Ram Jethmalani on unaccounted money in foreign tax havens, and crystalized in the
Anna Hazara movement in early 2011.3 This perception heightened during 2010-2014 as details emerged
on possible distortions in policy decisions (e.g. Spectrum auctions, Coal leases, Air India’s rights as
National airline, lending by Public sector banks). Black money is traditionally also linked to tax evasion
and corruption in the tax bureaucracy, and in corruption in Govt expenditures, programs and project of
the Government and with investment in land and Real Estate. The 2009 PIL and the 2011 Protests and
agitations against corruption, came to a head when the previous govt was defeated in the election and
the Supreme Court Ordered the Union Government to set up a Special Investigative Team (SIT) on Black
money.

India has long been a Dual economy characterized by a Documented and an Undocumented segment.
The former is referred to by different names like, Formal, Organized (Corporate/Govt-Public Sector) and
is relatively large scale, modern (manufacturing, mining, rail & air transport, Hotels, financial services,
Utilities]. The latter is referred to as Unorganized or Informal Sector and is characterized by relatively
smaller firms (SSI, traditional Household enterprises) and is predominant in Real Estate & construction,
wholesale & retail trade, minor minerals, road transport & services, Restaurants & traditional hotels,
Agriculture. It is also characterized by fewer Government controls and regulations and lower voluntary
tax compliance. As the line between the Black and Grey economies is opaque and diffuse, the overlap
between the “Black” and “white” economies can be considered as the Grey economy. The fruits of tax
evasion and corruption in the “White” economy, usually enter the “Black” economy and Black money is
often converted into white through various Grey channels (Virmani (2002)). Since the liberalization and
reforms of the 1990s the Grey or Multi-colored may have expanded, consisting of dark areas of the
White economy [Public Sector Banks and Financial institutions, Unregulated or partly regulated
elements of Finance (e.g. ND-NBFCs), and Public-Private-Partnership Infrastructure, Professional
2
The latest data revision shows that FY19 growth was approximately 0.5% point lower than the initial data
indicated.
3
https://en.wikipedia.org/wiki/2011_Indian_anti-corruption_movement

3
services] and elements of Black economy trying to service the formal economy (e.g. sales & service of
large firms).

Figure 1: Quarterly Growth (YoY) of GDP and GVA at constant 2011-12 prices

10%

9%

8%

f(x) = − 0 x² + 0 x + 0.04
7% f(x) = − 0 x² + 0 x + 0.05

6%

5%

4%

GVA Polynomial (GVA)

3%
GDP Polynomial (GDP)
2%

1%
12-3q1
12-3q2
12-3q3
12-3q4
13-4q1
13-4q2
13-4q3
13-4q4
14-5q1
14-5q2
14-5q3
14-5q4
15-6q1
15-6q2
15-6q3
15-6q4
16-7q1
16-7q2
16-7q3
16-7q4
17-8q1
17-8q2
17-8q3
17-8q4
18-9Q1
18-9Q2
18-9q3
18-9q4
19-20q1
19-20q2
Source: Authors calculations, based on National Accounts Statistics

The central thesis of this paper is that economic and institutional reforms designed to eliminate
corrupt practices, increase the costs of corruption and tax evasion and reduce the size of the Black &
Grey economy have, in the absence of sufficient incentives to stimulate the economy, have resulted in a
collapse in Growth. To put it a little differently the downward pressure on the Black economy has not
been compensated by sufficient incentives to induce a shift into the White economy, resulting in an
overall deceleration. Changes in Monetary policy Institutions,4 such as Inflation targeting, MPC,
regulatory tightening) acted as negative shocks for the real economy; A sharp tightening of monetary
policy and Banking-Financial regulations, interacted with a legacy of loose monetary policy and
regulatory forbearance, to amplify the downward part of the J curve of institutional change.

The solution therefore lies in incentivizing the formal economy and slowing/halting any further
measures against the black economy till growth is restored to its earlier levels. Macro-economic factors
which have had a net negative effect on the white economy and regulatory changes that triggered the
collapse, will also have to be addressed to accelerate the restoration of growth. Other wise the J curve
4
We use Institutions as defined by Alfred North, as the formal laws and informal rules under which economic
individuals, including economic agents, operate. Detailed definition below.

4
effect of institutional changes is likely to be much more prolonged than the J curve effect of policy
reforms.

Virmani (2009, 2012) proposed the, “J curve of Policy reform”, also termed the, “J curve of Growth
& Productivity” , to explain the lag in response of GDP growth to the major policy reforms during the
1990s, by analogy with “J curve of Trade”. In this paper we explore the nature and lags in response of
Economic Growth to institutional reforms, what one may term the “J curve of Institutional Reform”, by
analogy with the earlier one. To recall the definition given by Nobel Prize winning economist, Alfred
North, “Institutions are the humanly devised constraints that structure political, economic and social
interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes
of conduct), and formal,” including laws, & rules. Economic Policy reform is often also closely linked to
Economic laws, rules and procedures and the economic institutions which implement these laws, so in
some cases policy reform and institutional change are two sides of the same coin.

The next section provides the Economic Background and legacy of past actions and inactions from
2009-13. Section 3 outlines the Institutional changes and reforms since 2014. Section 4 provides a data-
based analysis of the assertions made in section 3 and explores the consequences. Section 5 provides
policy solutions for dealing with Growth recession and exploiting opportunities for accelerating growth
back to its full potential. Section 6 concludes the paper.

2. Economic Background & Legacy

The economic reforms of the 1990s & early 2000s reached fruition in the mid-2000s. These reforms,
aided by a favorable global environment, lead to the fastest growth that Indian economy had ever seen
(8.8% during 2003-4 to 2007-8)5. When the Global Financial Crisis struck in 2008, GDP growth collapsed
in H2 of 2008-09, to 1/3rd to 2/5th of the average. Economic growth was quickly restored in FY10, to its
earlier range (8.5%), through a combination of fiscal, monetary and credit measures. 6 Left-Socialists in
and outside UPA became over optimistic about the Indian economy, assuming that enough had been
done to raise the growth rate of the economy permanently to the 7.5%-8% range and it was time to
reorient govt policy sharply towards Social Welfare schemes and Projects,. Macro policies therefore
reverted to the philosophy of the 1980s, including fiscal expansion to fund low quality social schemes,
loose monetary policy and telephone banking through the Public Sector banks. Growth was pumped-up
during the next two years (FY11, FY12), to an unsustainable average of 7.6% per annum. 7 Corruption
allegations reached many sectors of the economy in the Union list, which were earlier relatively free
5
Average growth till 2011-12 is calculated from GDP base 2004-05.
6
The collapse of Construction activity, indicative of severe problems in real estate and PPP infrastructure was
much more severe, with growth rate collapsing by 50% to 90% after the Global Financial crisis. The restoration of
the growth rate was a little slower but almost as strong as for total GDP, it collapsed much more than overall GDP
(to an average 1.4% per annum in FY12-13), given the grinding down of real estate and infrastructure investment
due to the effect of NPAs (hidden to the public, but known to insiders).
7
One of the drivers of this growth was an unsustainable spike in Agricultural growth to an 6.5% per annum average
during FY2011+FY2012 from 3.8% average during FY2004 to FY2010. This spike in agricultural growth, also
temporarily raised the rate of growth of real rural wages. The rural wage growth reverted to normal, along with
the reversion of agricultural growth to 3.1% average in FY13+FY14. This contrasts with the growth of GDP from
manufacturing, which in the same three periods, was 10.6%(FY04-10), 9.0%(FY11-12) and 0.2% (FY13-14), with the
collapse driven by retroactive taxation, increase in complexity of land acquisition, increase in bureaucratic controls
on education and botched Spectrum allocations, leading to a nose-dive of confidence among private investors,
Domestic and Foreign.

5
from corruption. Ever-greening of NPAs in Real Estate & Infrastructure became endemic and, as a result,
there was danger of another Balance of Payments Crisis (BOP) crises in 2012. Growth subsequently
(FY12 & FY13) collapsed to an average of 4.9% per annum.8
A clear shift in approach was heralded by the Bureaucratic-Socialist policies and approach of the Sonia
Gandhi led National Advisory Council. This included the Right of Children to Free and Compulsory
Education (RTE) Act, 2009; National Food Security Act, 2013 (Cereals); The Right to Fair Compensation
and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and the Companies
Act, 2013(w/o Bankruptcy provisions). In each case some weakness in approaches & procedures raised
by Economic reformers, distorted by 1980s style Bureaucratic Socialists, into a Bureaucratic Control
nightmare. Not surprising the Corruption associated with 1980s Bureaucratic Socialism returned with a
Vengeance, and for the first time became as visible in the Union Government as it had been in the
States. This led to a counter reaction. A Public Interest Litigation (PIL) was filed by Jethmalani, Divan &
Gill (+3) in 2009 on Black Money in foreign banks.9 Based on this PIL the Indian Supreme Court Ordered
the setting up of a Special Investigation Team (SIT) in July 2011. In the mean-while Shri Anna Hazare
went on a protest fast in April 2011 and launched an agitation demanding the introduction of the long
pending Jan Lok Pal Bill.
The FRBM which expired in 2008-9 and was deliberately held in abeyance to restore growth in 2009-10
was not re-introduced by the Government in 2010-11 or in next 3 years. After the financial Crises hit the
Indian economy in August 2008, automatic stabilizers were given full play, the agriculture loan write-offs
which had been introduced in the 2008-09 budget at the last minute were accelerated to put income in
the hands of farmers and indirect taxes were reduced in the 2009-10 budget to provide a fiscal stimulus
to the economy. The Central fiscal deficit therefore rose to 6% of GDP in 2008-09 and 6.5% of GDP in
2009-10. The Post-GFC Fiscal stimulus was not reversed after restoration of GDP growth to normal in
2010-11. Despite a windfall from spectrum auctions in 2010-11 the fiscal deficit averaged 5% in the next
four years, 2% points above the FRBM limit of 3%. Anti-reform tax measures, like retroactive taxation
and taxation of unrealized capital gains of Startups as accrued income, were introduced, which
undermined the incentives for FDI and entrepreneurship.
The Monetary – Credit Policy, which was consciously loosened During September 2008 to 2009, with
the real repo rate reduced to negative -6.8 in FY10, to keep the economy from collapsing under the
global financial shock. However, it remained relatively loose after the crisis had passed, with negative
real repo rates of -2.7%, real monetary (base) growth of 8.3% and Real Bank Credit growth of 10.1% per
annum during FY11+FY12. Public Sector Bank (PSB) credit, which had expanded in real terms at almost
double the Growth rate of GDP during the boom of 2003-2008 rapidly turned risky, as growth collapsed
in FY13 (average 4.9% for FY13+14). This was compounded by the earlier forced-lending by Public Sector
Banks for ‘Public Goods Infrastructure’ and the rapid return of Telephone-Banking (after relative decline
in 1991-96)10, particularly with respect to ever-greening of Real Estate Loans.
A combination of excess demand and supply constraining policies resulted in a bubble followed by
bust. Inflation rose to a peak of 16.3% in January 2010 and remained high for the next three years,
reaching a sub-peak of 12.6% in November 2013. The Current Account Deficit (CAD) worsened to -4.3%
8
Growth numbers are based on quarterly averages, to capture the time patters of shocks, policy actions and
consequences/results.
9
https://economictimes.indiatimes.com/news/politics-and-nation/sc-notice-to-centre-on-black-
money/articleshow/5070286.cms?from=mdr .
10
Among the measures taken during 1991-96 was to replace political appointees on boards of Government
Financial Institutions (e.g. LIC, UTI) and Public Sector Banks (SBI, Nationalized banks).

6
of GDP in 2011-12 and further to -5.2% in 2012-13, reaching a trough of 7.3% in Q3 of 2012-13. GDP
growth was therefore on steroids during this period (despite high oil prices), building up Non-performing
assets and unrecognized Fiscal problems beneath the surface. Some Macro control was established by
bringing the Fiscal deficit down to 4.9% in 2012-13 and 4.5% in 2012-13, from 5.9% in 2011-12 &
tightening monetary policy by raising real repo rates to -2.0% (from -2.7% in FY10-11)), and contracting
real money supply by -2.4% (from 8.3%), this reduced the Current Account, despite a bank credit real
growth of 6.0% (down from 10.1%) .

3. Institutional Change & Reform: J curve

Several steps were taken in 2014-15 and 2015-16 to address the weakness in the Economy, which
started surfacing with the growth slowdown during 2012-13, 2013-14, starting with the breaking of
Policy Paralysis (Administrative-political gridlock in decision making) and the announcement of
economic reforms.

Policy related Corruption was addressed though several policy and institutional changes: Auctions
were introduced for Telecom Spectrum, Coal and Minerals. De-control of petrol and diesel prices
and switch to direct transfer of LPG subsidies are structural reforms that will have long term
benefits. The Government moved quickly to moderate the inflation in cereals prices, by selling
grain from stocks, which were 2x to 3x levels recommended by earlier Technical Committees on
Buffer Stocking. It also supported and implemented the CAACP’s recommendations to
moderate the pace of MSP inflation, which was driving food/agriculture prices. A unified
National Agricultural E-market was initiated. Central Govt. encouraged States to liberalize labor exit
policies, promising speedy approval of legal changes that required Central Government approval.
Rajasthan, Madhya Pradesh and other States have already taken advantage and observed an
acceleration of employment growth.11 LPG subsidy was rapidly linked to Aadhar and paid through bank
accounts. Universalization of bank accounts through the Jan Dhan scheme is also being seeded with
Aadhar.

There are, however, three broad sets of institutional changes, which laid the ground for the current
slowdown: The Campaign against Black Money, Change in Structure of Monetary policy and Financial
Regulation Institutions & Governance and Fiscal Policy approach.

3.1. Black Economy

The campaign against Black Money started soon after the formation of the new Government at end
May 2014. It was focused on accumulated of untaxed Asset in the form of undeclared foreign holdings
and Bank accounts, domestic Real Estate and cash holdings, moving progressively from the first to the
third.
11
As analyzed by and shown in Economic Survey 2018-19

7
 A Special Investigating Team (SIT) on Black Money was notified by the Union Government in June
2014, under the direction of the Supreme Court of India. 12 Several other changes in laws, rules and
procedures directed at the holdings of “unaccounted assets (black money)” followed. Prominent among
them were, the, “Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015,
in July 2015, 13 the “Real Estate (Regulation and Development) Act 2016 (RERA)” in May,14 the “Benami
Transactions (Prohibition) Amendment Act, 2016 in November 2016,15 and culminating in the
Demonetization on November 8, 2016.

By definition of Black Assets, it’s very difficult to get direct evidence on the effect of these measures
on Black Economy.16 The best available indicator is the trend in Housing Prices, particularly those in
Delhi, Mumbai the financial capital and the other metros Calcutta, and Chennai. The index of House
prices in Delhi, adjusted for general inflation, have clearly flattened out since Q4 of FY2015 (Figure 2).
The trend growth of House prices has also declined at all India level and in Mumbai, Calcutta and
Chennai. Real house prices have decelerated all India (average) from 8% during 2010-14 to 4.7% per
annum during 2014-19, decelerating from 15% to 4.9% in Delhi, from 8.3% to 4.9% in Mumbai, from
14.4% to 4.3% in Calcutta and from 8.3% to 4.3% in Chennai. One of the implications of the reduction or
elimination of the black premium in house prices is a wealth effect on private consumption demand in
the black economy.

Another indicator of Black money is Gold purchases. As there is little production of Gold in the country,
import of gold in USD, is a good measure of Gold purchases. Figure 3 shows that gold imports jumped
sharply during FY11, FY12, FY13 during the period in which corruption allegations ballooned. It then
dropped sharply in FY14 below its long-term linear trend. It has since flattened out completely during
the period in which the anti-corruption campaign picked up steam and has not grown since, remaining
in a narrow range since (figure 3).

Digitization of the economy, which started in the 2000s has continued, with rate of growth (as
measured by the log difference) continuing at a steady pace, with some disruptions. This includes the
spread of Point of Sale terminals for credit and debit cards and the Volume and value of card and mobile
banking payments. Mobile banking volume is one of the few modes of payment, which has shown an
acceleration in the rate of growth in last few years, though the rate of growth of the value of transaction
has declined. This suggest that mobile banking is spreading to rural and poorer areas where transactions
value is smaller and the density of banking facilities is lower.

Figure 2: Quarterly Index of Real House Prices (using all India CPI as deflator)

12
https://www.businesstoday.in/current/economy-politics/modi-govt-forms-sit-to-probe-black-
money/story/206637.html .
13
https://www.incometaxindia.gov.in/pages/acts/black-money-undisclosed-income-act.aspx .
14
http://mohua.gov.in/cms/rera.php
15
https://pib.gov.in/newsite/PrintRelease.aspx?relid=159882 .
16
Historically, real estate sale and purchase is estimated to use 70% black cash and 30% white cheque payments;
Thus, the decline in generation and/or domestic circulation of black money would be reflected in the demand for
tradable Real estate. The decline in demand could also be due to individuals with Black Money/assets (or family
members) moving their unaccounted funds abroad.

8
 260
ALL INDIA MUMBAI DELHI

Poly. (ALL INDIA) Poly. (MUMBAI) Poly. (DELHI)

240

220

200

180

160

140

120

100
10-11q1
10-11q2
10-11q3
10-11q4
11-12q1
11-12q2
11-12q3
11-12q4
12-13q1
12-13q2
12-13q3
12-13q4
13-14q1
13-14q2
13-14q3
13-14q4
14-15q1
14-15q2
14-15q3
14-15q4
15-16q1
15-16q2
15-6q3
15-6q4
16-7q1
16-7q2
16-7q3
16-7q4
17-8q1
17-8q2
17-8q3
17-8q4
18-9q1
18-9q2
18-9q3
18-9q4
19-20q1
Source: Calculations based on House price index from RBI Data Base

It was assumed by many observers, that the suppression of the black economy would lead to a shift
of economic agents to the white economy. This has happened to some extent as evidenced by the
increase the number of potential taxpayers voluntarily filing income tax returns. The volume of
However, the other assumption that the increase in the White economy would more than offset the
decline in the black economy has been belied, creating downward pressure on overall GDP growth.

9
Figure 3: Gold Imports (US$ mi)
60
Gold
Polyno
mial
(Gold)
50 Linear
(Gold)

40

30
US$

20

10

0 Financial Year

Source: Authors calculation based on DGCIS data obtained from RBI data base

3.2. Financial Policy & Regulation

The monetary policy framework and the framework for Non-performing loans & debt default, has
been transformed during 2014-19 (FY15-19). This includes the setting up of a Monetary Policy
Committee, tightening of Bank NPA regulations and the passing of the IBC.

The new Companies Act missed a golden opportunity to introduce bankruptcy provisions to facilitate
the exist of non-performing promoters and companies. Fortunately, this was rectified by the incoming
government, by one of the most important reforms of the decade, the passing of the “Insolvency and

10
Bankruptcy Code (2016) in May 2016.17 This law (IBC) represented a major change in the exit policy for
Companies and in the legal framework for recovering & resolving Non-Performing loans (NPAs). We
hypothesize that, like the J curve of Policy Reform, Productivity & Growth,18 there is a J-curve of
Institutional Reform and Growth. When a major institutional change like the IBC is legislated, and the
rules regulations and procedures to implement it are under construction, there may be an initial
worsening of economic growth and productivity as the system learns and adjusts as do the economic
agents affected by it. Thus, productivity may decline initially, before gradually recovering and exceeding
earlier levels and helping accelerate Growth. The situation can become even more complicated, when
there are other institutional reforms causing collateral damage to the financial system and the economy.

A new RBI Governor, who had previously recommended the introduction of Inflation targeting, was
appointed in August 2013. He immediately set out to lay the grounds for introduction of such a
framework, while introducing elements of inflation targeting into the RBIs processes and procedures
and his own monetary policy decisions.19 A formal transformation of the Monetary policy framework
took place in June 2016. The informal system, controlled by the RBI Governor, was replaced by a formal
system of Inflation targeting and a Monetary Policy Committee (MPC) was set up to implement it. 20 A
target of 2% to 6% CPI inflation was set (4% +/- 2%), with the MPC, headed by Governor, mandated to
achieve it. This resulted in a sharp tightening of monetary policy, with the rise in the Real repo rate from
-2.0% in FY13+FY14 to +1.9% in FY15+FY16 and further to an average 2.3% in FY17-FY19. This was
accompanied by heightened volatility in base money growth.

The regulatory system for Banks was simultaneously tightened, particularly for Public Sector Banks
(PSBs) which were known to have accumulated hidden NPAs as a result of forced lending to
Infrastructure and “Telephone Banking” practices. The implementation of existing norms started from
2015-16, with the declared NPAs of Public Sector Banks jumping from 5% on March 31, 2015 to 9.3% on
March 31 2016, led by an increase in Nationalized Bank NPAs. A Prompt Corrective Action (PCA)
framework for (Public Sector) Banks was introduced in April 2017 (revision). 21 Real Interest rates rose,
Real Credit growth declined progressively and Base Money growth Very volatile-amplifying risk instead
of reducing it! An unanticipated consequence of all these actions was to worsen the Bank NPA problem,
lead to a substitution of NBFC credit for Commercial bank credit, leading to a default by the ILF&S and
triggering a further decline in GDP growth.

3.3. Fiscal Policy

From the first budget for 2014-15, the Government announced its intention to control the Fiscal
Deficit, with an initial step of reducing the gross fiscal deficit from 4.5% of GDP in 2013-14 to 4.1% of
GDP in 2014-15. The Fourteenth Finance Commission was tabled in Parliament on February 2015. 22 It
implemented the Finance Commission’s recommendation of a record 10% increase in the devolution
from 32% to 42%. It re-iterated the 3% targets of the FRBM, but also gave an option for setting
Debt/GDP ceilings to replace the GFD/GDP targets. The govt adopted the fiscal recommendations of the

17
http://prsindia.org/theprsblog/insolvency-and-bankruptcy-code-all-you-need-know .
18
Virmani and Hashim (2011), Virmani, Hashim and Kumar (2011,2009).
19
The author was a member of the Informal Advisory Committee on Monetary Policy, appointed by Governor
Raghu Ram Rajan.
20
https://pib.gov.in/newsite/printrelease.aspx?relid=151264 .
21
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10921&Mode=0 .
22
http://prsindia.org/report-summaries/fourteenth-finance-commission-report .

11
14th FC and started implementing them from 2015-16 budget. An FRBM review Committee was set up in
2016 and its report submitted in January 2017.23 Further actions followed in 2017-18 budget, and the,
“Fiscal Responsibility and Budget Management (amendment) Act, 2018” was passed in April 2018. 24 One
consequence of all these institutional changes on the fiscal front was to discipline the Union Govt. Given
the initiation of new expenditure programs, it pressured the Government to raise tax revenue collection.
Consequently, the promised introduction of Corporate Tax reform was delayed and stretched out. A
Long Term Capital gains Tax was introduced. A number of new Cesses & surcharges imposed. Each
measure was driven by the goal of bridging the shortfall of tax revenues from targets set for achieving
the glide path of the Central Fiscal deficit. A reduction of Personal Income tax rates was not enough to
offset the negative effect of these measures. The surcharges imposed in 2019-20, triggered a loss in
confidence and a GDP Growth decline in Q1 2019-20.

The Constitutional amendment to replace 10s of Union and State Indirect taxes by the Goods and
Services Tax (GST) was the most important economic amendment of the constitution since its
promulgation. A GST council with representation of all the States was created to take major decisions
relating to the GST. In the effort to get approval of this major constitutional amendment, the need for
creating a professional advisory group to analyze economic implications of alternative tax structures and
suggest efficient design was neglected. Consequently, the GST introduced on April 1, 2017 was highly
complex, difficult to comply with, monitor and enforce. As a direct consequence of this complexity,
piecemeal efforts to simplify it, and adapt rules and procedures, revenue estimates have fallen short of
targets. The Unemployment rate, which had continued to decline after de-monetization despite a fall in
GDP growth during H1 of 2017, reached a trough of 3.4% in July 2017, and rose progressively to reach
5.8% in March 2018 and 7.1% in March 2019 (~= to October 2016 rate).

Other reform measures such as Aadhar linked Direct Benefit Transfers and subsidies for LPG were also
introduced to reduce leakages and attain more effective targeting of Government expenditures. The
effect of all the reforms in Fiscal Deficit, Expenditures, GST and Income tax initially had a positive effect
on animal spirits; the earlier Euphoria was followed by a loss of confidence, as the J curve of GST
complexity became apparent, in the form of low revenue growth. The experience of 10s of countries
which have introduced simple single rate or few rate VATs with limited exemptions, shows that the J
curve effect of the introduction of the GST would have been far smaller if a simple rate structure had
been introduced from the beginning.25

4. Economy in FY 2020
GDP growth averaged 7.1% per annum during 2012-13 to 2018-19. GDP Growth declined by (-) 0.3
per cent point to 6.8% in 2018-19 and then collapsed by -2.3 per cent points to 4.8% in H1 of FY20 (Table
1). From the demand side the greatest contributor to the collapse of GDP in H1 of FY20, was Gross Fixed
Investment followed by Private consumption. Part of the collapse was a base effect, with both Private
consumption and fixed investment growth having accelerated in 2018-19 above the average growth
during FY13-18. The collapse occurred despite an increase in Net exports(exports-imports), after a

23
http://prsindia.org/report-summaries/frbm-review-committee .
24
https://dea.gov.in/budgetdivision/frbm-mtef-statements-and-related-circulars ,
https://dea.gov.in/sites/default/files/frbm_amendment_acts_2018_1.pdf .
25
The attempt to simplify the system after its introduction, was beneficial to large and medium firms, but created
further confusion for Small trade and industry, with limited resources, to keep track of all the changes.

12
decline 2018-19. The increase in Government consumption in H1 FY20, was insufficient to offset the
decrease in private demand (table 1). On the supply side the main driver of the collapse was the
deceleration in Manufacturing by -7.7 per cent points (from FY13-19 average) to -0.25%. The
deceleration was broad based, with the significant exception of GDP from Construction (Table 1). This
suggests that the decline in investment was driven by investment in machinery and equipment and likely
relates to a loss in confidence.

The effect of the Global situation has been to make international Trade a dampener of growth during
FY13 to FY19 with an average growth of Net exports of Goods & Services of -28.4 i.e. Imports net of
exports grew by 28.4% (simple average; table 1). Many economists have attributed this to an overvalued
rupee. Though the REER (RBI 36 country) appreciated by an average 1.2% per annum from FY13 to FY18,
it depreciated by 4.4% in FY19, correcting most of the overvaluation as measured by this indicator.
Consequently, the situation has reversed in FY20 with Net Exports of Goods and Services increasing by
23.2% in H1 of FY20. The collapse of GDP growth in FY20, cannot therefore, be attributed directly to
external conditions, even though it had a negative effect on GDP growth during FY13 to FY19.

Table 1: GDP Growth and Contribution to Growth

GDP average growth ( %) Chng from Avg Contribution to GDP/GVA Chng from Avg
Fy13-18 Fy13-19 FY19 H1Fy20 FY19 H1Fy20 Fy13-18 Fy13-19 FY19 H1Fy20 FY19 H1Fy20
Final Expenditures
GDP at Market Price 7.11 7.06 6.8 4.8 -0.3 -2.3
Pvt Cons(PFCE) 7.1 7.3 8.1 4.1 1.0 -3.1 0.57 0.58 0.67 0.48 0.10 -0.10
Govt Cons(GFCE) 6.2 6.6 9.2 12.3 3.1 5.7 0.08 0.09 0.14 0.30 0.06 0.21
Investment (GCF) 5.6 6.1 9.0 0.24 3.4 -5.8 0.27 0.30 0.47 0.20
Fixed Invest(GFCF) 5.5 6.2 10.0 0.5 4.4 -5.6 0.25 0.28 0.46 0.04 0.21 -0.24
Net Export(Export-Import) -28.0 -28.4 -31.0 23.2 -3.0 51.6 0.05 0.02 -0.16 0.26 -0.22 0.23
GVA 6.91 6.87 6.6 4.6 -0.3 -2.2
Agriculture & Allied 3.1 3.1 2.9 2.1 -0.2 -1.0 0.08 0.07 0.07 0.05 -0.01 -0.02
Mining 5.9 5.2 1.3 1.6 -4.5 -3.6 0.02 0.02 0.01 0.01 -0.02 -0.01
Manufacturing 7.6 7.5 6.9 -0.25 -0.6 -7.7 0.19 0.19 0.19 -0.01 0.00 -0.20
Electricity, Gas etc 6.2 6.3 7.0 6.1 0.8 -0.3 0.02 0.02 0.02 0.03 0.00 0.01
Construction 3.8 4.5 8.7 4.6 5.0 0.1 0.04 0.05 0.11 0.08 0.06 0.03
Trade,Trasport,Store,Com 8.6 8.3 6.9 6.0 -1.7 -2.4 0.23 0.23 0.20 0.24 -0.03 0.01
Finance,Real Estate,Prof Serv 9.6 9.3 7.4 5.9 -2.1 -3.4 0.29 0.28 0.25 0.32 -0.04 0.04
Admin&othrServ 7.3 7.5 8.6 10.1 1.4 2.7 0.13 0.13 0.17 0.28 0.04 0.14

Source: Authors calculation based on National Accounts Statistics, DOS, GOI, base 2011-12.

An examination of the IIP for manufacturing shows that the decline in H1 FY20 was very broad based,
with only a few exceptions like food products, Tobacco products, wearing apparel, wood and related
products, Pharma and Other manufacturing, with the last three recovering from a decline in FY19. in
consumption goods the decline during H1 FY20 was due to Consumer durables, with Automobiles and
transport equipment, playing a prominent role. Consumer non-durables in contrast recovered from a

13
decline in FY19, except for Textiles & Furniture. Decline in Capital goods production was sharp and broad
based (Table 2).

Table 2: Index of Industrial Production (base 2011-12): Growth Rate

FY12 to FY19 FY19 H1Fy20 Diff from previous
Cmpound Average YoY YoY FY 2019 H1Fy20
Mining 1.1 1.2 2.9 1.0 1.8 -1.9
Manufacturing 3.9 6.7 3.6 1.1 -0.4 -2.5
Electricity 6.6 3.9 5.2 3.8 -1.5 -1.4
General 3.8 3.8 3.6 1.3 -0.2 -2.3
Primary goods 3.4 3.4 3.5 1.2 0.2 -2.3
Intermediate goods 3.2 3.2 -0.6 9.4 -3.7 9.9
Consumer non-durables 5.5 5.5 3.8 5.2 -1.7 1.4
Consumer durables 3.8 3.9 5.3 -5.0 1.5 -10.4
Infrastructure/construction goods 5.1 5.1 7.5 -1.1 2.4 -8.6
Capital goods 1.2 1.2 2.8 -10.3 1.7 -13.2
Manf: Food products 2.8 3.0 12.0 12.4 9.3 0.4
Manf: Beverages 1.2 1.2 3.1 1.5 1.9 -1.6
Manf: Tobacco products -0.9 -0.3 -1.3 5.7 -0.4 6.9
Manf: Textiles 2.4 2.5 1.1 -3.4 -1.3 -4.5
Manf: wearing apparel 6.2 6.6 10.8 11.9 4.6 1.1
Manf: Leather & prodcts 3.2 3.3 0.6 -0.4 -2.6 -1.1
Wood & wood,cork(- furn), straw,plaiting prds 0.6 0.7 12.6 13.2 12.0 0.6
Manf: paper & products 0.6 0.7 -4.3 -12.9 -4.9 -8.6
Printing & media recording -0.3 -0.2 -2.0 -2.2 -1.7 -0.2
Manf: Coke & Refinery prds 3.4 3.5 2.6 -1.3 -0.8 -3.9
Manf: Chemicals & prods 2.5 2.5 2.3 0.3 -0.2 -2.0
Pharma, medicinal chemicals, botanical prds 11.6 12.0 1.4 4.3 -10.2 3.0
Manf: Rubber & plastics prds 1.1 1.3 -2.4 -5.3 -3.5 -3.0
Manf: Non-metallic mineral prds(othr) 3.1 3.1 8.5 -0.6 5.4 -9.1
Manf: Basic metals 5.1 5.1 2.4 13.5 -2.7 11.1
Manf: fabricated metal prds(- mach & equip) 0.9 0.9 -1.4 -13.2 -2.3 -11.8
Manf: computer, electroni c & opti cal prds 7.7 7.9 13.5 -1.4 5.7 -14.9
Manf: Electrical equipment 1.4 1.7 2.4 -2.0 1.0 -4.4
Manf: Machinery& equipment nec 3.0 3.1 2.4 -9.6 -0.6 -12.0
Manf: motor vehicles, trailers & semi-trailers 3.0 3.1 7.2 -14.5 4.3 -21.7
Manf: Transport equip-othr 5.5 5.6 8.8 -5.7 3.3 -14.5
Manf: furniture 11.3 12.1 7.5 -9.7 -3.8 -17.2
Other manufacturing -1.0 -0.5 -12.5 -6.6 -11.5 5.9

Source: Authors calculations based on IIP data from Ministry of Industry

14
 4.1. Monetary Policy Tightens Sharply
The change in Monetary policy regime is starkly revealed in Table 3, with real interest rates on Repos,
one-year Govt Securities and Call Money all changing from negative during FY09 to FY14 changing
sharply positive during FY2015 to FY2019. The increase in real rates from FY2014 to FY2015 was 3.2% for
Govt Securities (1-year) and 3.5% for bank loans. But this was not the end of the tightening. Real rates
continued to rise till FY2019 increasing by 0.4% for Bank credit and by 1.4% points for one-year
Government Securities, driven by a further increase of 0.8% in Real Repo rates. The Transmission rate
from Repo rates to loan rates, however fell sharply to ~0.4 from ~ 0.9%. The rising trend in real rates and
the tightening of Bank NPA norms has been accompanied by a decelerating trend in Bank Credit to
Commercial sector (Figure 5). Real annual non-food credit growth decelerated from an average of 6.6%
during FY09 to FY14 to 4.8% during FY2015 to FY2019, driven by a deceleration of 10.3% points in credit
to manufacturing and 17.9% points to infrastructure. Real Credit growth to Construction, Housing and
personal loans however accelerated, offsetting some of this deceleration (Table 3: BCCS =Bank credit to
Commercial sector).

Figure 5: Growth of Bank Credit & Real Repo Rate

Source

25 6.0
Growth of Bank Credit & Repo Rate (const price)
Bank Credit (lhs) Repo rate (rhs) 4.0

Linear (Bank Credit (lhs)) Linear (Repo rate (rhs))

20
2.0

0.0

15
-2.0

-4.0
10

-6.0

-8.0
5

-10.0

0 -12.0
08-09q1

09-10q1
09-10q2

10-11q1
10-11q2

11-12q1
11-12q2
11-12q3

12-13q2
12-13q3

13-14q2
13-14q3

14-15q3
14-15q4

15-16q3
15-16q4

16-17q3
16-17q4
17-18q1

17-18q4
18-19q1

18-19q4
19-20q1
08-09q2
08-09q3
08-09q4

09-10q3
09-10q4

10-11q3
10-11q4

11-12q4
12-13q1

12-13q4
13-14q1

13-14q4
14-15q1
14-15q2

15-16q1
15-16q2

16-17q1
16-17q2

17-18q2
17-18q3

18-19q2
18-19q3

19-20q2

Source: Authors calculations based on RBI data.

15
 The tightening of NPA norms for Scheduled Commercial Banks was reflected in the sharp rise in
declared NPAs on audited balance sheets, which rose sharply from FY2016 to FY2018 before plateauing
out in FY2019. Declared NPAs of SCB increased from 4.3% in FY2015 to 7.5% in FY2016, 9.3% in FY2017
and 11.2% in FY2018. Most of this driven by the increase in NPA’s of Public Sector Banks from 5% in
FY2015 to 14.6% in FY2018 (Table 4). The NPAs of Public sector Banks (PSBs) are on average 3 times that
of Private Banks during FY2016 to FY2018. This additional NPAs can be attributed to a combination of
inefficiency and corruption associated with PSBs.26

Table 3: Real Credit growth & Interest Rates (%)

Campaign Against Black Money
Inflation in House Prices: (Compound annual average)
Quarter MUMBAI DELHI LUCKNOW KOLKATACHENNAI
AHMEDABAD
BANGALORE * JAIPUR KANPUR KOCH
Q4fy13/09 15.4 16.7 0.2 7.8 11.5 16.6 0.1 7.9 -6.2
Q1fy15/11 8.8 14.1 5.9 6.3 15.5 15.2 4.5 -4.4 -8.4 6.4
Q1fy20/15 3.8 3.5 2.2 4.7 7.6 2.3 2.7 0.9 5.3 8.4
Q4fy13/09 25.6 26.9 10.4 17.9 21.6 26.8 10.3 18.0 4.0
Q1fy15/11 19.2 24.5 16.3 16.7 25.9 25.6 14.9 6.1 2.0 16.8
Q1fy20/15 7.7 7.5 6.2 8.6 11.6 6.2 6.6 4.8 9.3 12.3
Source: DaraIndia/New/Misc/House_Price_Index
Table 2: Index of Real House Prices(using all india CPI)
260
ALL INDIA Polynomial (ALL INDIA) MUMBAI

Polynomial (MUMBAI) DELHI Polynomial (DELHI)

240

Table 4: NPA OF SCHEDULED COMMERCIAL BANKS (Gross NPA/Gross Advances)

Avg:04- 200 200 200 201 201 201 201 201 201
220
March 31 of 18 STD 5 8 9 3 4 5 6 7 8
Public Sector Banks 5.4 3.8 5.4 2.2 2.0 3.6 4.4 5.0 9.3 11.7 14.6
SBI 4.8 2.4 5.3 2.6 2.6 4.4 5.0 4.3 6.4 9.1 10.9
NBs 5.6 4.5 5.4 2.1 1.7 3.2 4.1 5.3 10.7 13.0 16.4
Private200
Banks 3.0 1.0 3.6 2.3 3.2 2.0 2.2 2.3 3.1 4.0 4.5
Private Sector Banks 3.0 1.2 3.8 2.5 2.9 1.8 1.8 2.1 2.8 4.1 4.6
Foreign Banks 3.3 0.9 3.1 1.9 4.4 3.0 3.9 3.2 4.2 4.0 3.8
All SCBs 4.6 2.8 4.9 2.3 2.3 3.2 3.8 4.3 7.5 9.3 11.2
Change in NPA(%)
180    
SBI 0.4 1.2 0.2 0.0 0.0 0.1 0.5 -0.7 2.1 2.7 1.8
NBs 0.6 2.1 -3.2 -0.6 -0.3 0.6 0.9 1.2 5.4 2.3 3.5
Private Sector
Banks 160 -0.1 0.8 -2.0 0.3 0.5 -0.3 0.0 0.3 0.7 1.2 0.6
Foreign Banks -0.1 1.1 -1.8 0.0 2.4 0.3 0.8 -0.7 1.0 -0.2 -0.2
Ratio of NPAs    

26
Anecdotal
140 evidence suggests that “Telephone Banking” initiated a dilution of standards and led to increasing
numbers of bank officials compromising on commercial lending standards.

16

120
 PSBs/PvtBnks 1.7 0.8 1.5 1.0 0.6 1.8 2.0 2.2 3.0 2.9 3.2
NB/SBI 1.0 0.4 1.0 0.8 0.7 0.7 0.8 1.2 1.7 1.4 1.5
PvtSB/Frgn 1.2 0.4 0.8 0.8 1.5 1.7 2.2 1.5 1.5 1.0 0.8

As Non-Bank Financial companies (NBFC(D)s were not the target of the tightening norms, they
borrowed from the debt markets as well as the Commercial banks, to increase their lending to
Households at an average annual rate of 21% during FY14 to FY18. The Credit was directed towards real
estate developers as well as household borrowing for housing, autos and other Household purchases.
The default of IL&FS in FY19 heightened uncertainty, risk perception and risk perception relating to all
financial institutions including Co-operative Banks. The systemic effect of IL&FS default on other NBFCs,
led to a collapse of NBFC credit by 30-40%. By September 2019, however, NBFC credit was back in
positive growth territory. Given the peaking of the Scheduled commercial Banks NPAs at 11.2 by 2017-
18 and decline to 9.1% of GDP in 2018-19 (Table 3), they stepped in to fill some of the gaps, as reflected
in the acceleration in real credit growth above the trend in figure 3 and 5.4% (5%) point acceleration of
growth in FY19 above the previous four-year average (Table 3). However, overall credit growth remains
subdued in FY20 because of the clogging of credit channels due to uncertainty and heightened risk
aversion, despite actions taken by the Government with regards to capitalization of Public Sector Banks,
setting up mechanisms for last mile completion of housing projects and RBIs regulatory “Jaw- Boning”,
based on informal Asset Quality Review of NBFCs.
Real growth of base money has been on a flat trend for over a decade despite two severe shocks. The
first arising from the Global Financial Crises which hit the country in August 2008 resulting in non-
positive growth during three quarters (Q4 FY9 to Q2 FY10) and the Demonetization in November 2016,
resulting in non-positive growth of Monetary base during four quarters (Q3 FY17 to Q2 FY18). Real
growth of Reserve money averaged 1.6% per annum during FY10-FY14 and 3.6% per annum during
FY15-FY18. It has accelerated in FY19 to 16.3% to offset the effect of risk aversion on investment and
consumption.

4.1. Uncertainty and Risk Perception

The NSE’s VIX index shows a downtrend in uncertainty during FY2011 to Q2 of FY2020. There was
however, a spike in H2FY2019 and H1FY2020 , after which it returned to the downward trend (Figure
5).27 The spike coincides with the period in which the ILFS crisis started and led to a credit default. The
Consumer confidence index in contrast shows a rise in confidence declining trend in confidence from
Q2FY15 to Q3 FY16 and then a declining trend which was accentuated in Q2 &Q3 FY2019 (Figure 6).
Though the trend in investor and consumer confidence and investor uncertainty diverged for much of
the period, the two have moved in a consistent direction since the NBFC crisis started. Thus, the NBFC
crisis was a critical element in the decline in GDP from Q3 of FY2019 onwards, as it heightened
uncertainty and risk aversion. Given the heightened risk perception, the tax proposals in the 2019-20
budget led to a loss of confidence in the government, and RBIs ability and will to sort out the problems
created by the institutional changes and reforms. The loss of confidence and dampening of Animal
spirits triggered a broad-based collapse of GDP growth in Q1 FY2020. Actions taken by the Government
and the RBI since then, have restored confidence and reduced uncertainty to its trend (Figure 5). Thus,
a stabilization and modest upturn of GDP growth can be expected in H2 of FY2020.
27
India VIX Index* Volatility Index is a measure of market's expectation of volatility over the near term. ... From the
best bid-ask prices of NIFTY Options contracts, a volatility figure (%) is calculated which indicates the expected
market volatility over the next 30 calendar days. To the extent stock market reflects economic volatility, the index
can also be seen as an indicator of economic volatility.

17
 10
12
14
16
18
20
22
24
26
28
10-1q1
10-1q2
10-1q3
10-1q4
11-2Q1
11-2Q2
11-2Q3
11-2Q4
12-3Q1
12-3Q2
12-3Q3
12-3Q4
13-4Q1
Figure 5: NSE VIX Index of Uncertainty

13-4Q2
13-4Q3
13-4Q4
14-5Q1
14-5Q2
14-5Q3

18
14-5Q4
15-6Q1
15-6Q2
15-6Q3
VIX Index- NSE

15-6Q4
16-7Q1
16-7Q2
16-7Q3
16-7Q4
17-8Q1
17-8Q2
17-8Q3
17-8Q4
18-9Q1
18-9Q2
18-9Q3
18-9Q4
19-20Q1
19-20Q2
Figure 6: Consumer Confidence Index (RBI survey)
110
Cosumer Confidence Index
Current Poly. (Current)
Linear (Current)

105

100

95

90

85
Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
Mar-13

Mar-14

Mar-15

Mar-16

Mar-18

Mar-19
Jun-13

Jun-14

Jun-15

Mar-17

Jun-19
Dec-12

Dec-13

Dec-14

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18
Source: RBI Consumer Confidence Surveys, different years

4.2. Fiscal Deficits

The fiscal deficit (as a % of GDP) which was on a clear downtrend during the 2000s, because of
adoption of the FRBM target of 3% and the acceleration in the growth rate of the economy, rose sharply
in 2008-09 the year of the Global Financial Crisis(Figure 7). Though fiscal discipline had weakened even
before the Global Financial crisis (with announcement of a farm loan waiver), a deliberate decision was
taken after the crises to accelerate the loan waiver as it was the quickest way to get money in the hands
of individuals and counter the fall in income and expenditures. Therefore, Revenue expenditure
increased sharply from 11.9% of GDP in 2007-8 to 14.1% of GDP in 2008-9 & 2009-10 (Table 5). This was
accompanied by a reduction in tax rates to ensure wider distribution of incomes and consumption to
offset the declines due to the GFC. This was reflected in the decline in the reduction in Corporate
income taxes and Excise revenue by 0.2% of GDP each in 2009-10 (Table 4). These Fiscal policy actions
raised the Central Government Fiscal deficit from 2.5% of GDP in 2007-8 to 6.0% in 2008-9 & 6.5% of
GDP in 2009-10 (Figure 7).

19
Table 5: Fiscal Variables (% of GDP)
Year Expenditure Central GovtGross Fiscal Deficit Debt: Total Tax Revenues
RevExpC(=>) SubsC CapExpC FD_C(lhs) FDC&S(lhs) DebtC DebtC&S PIT CIT Excise Customs
2004-05 11.9% 1.4% 3.5% 3.9% 7.2% 65.5% 82.1% 1.1% 1.9% 2.4% 1.3%
2005-06 11.9% 1.3% 1.8% 4.0% 6.5% 63.9% 79.1% 1.2% 2.0% 2.3% 1.3%
2006-07 12.0% 1.3% 1.6% 3.3% 5.1% 61.4% 74.7% 1.5% 2.5% 2.2% 1.5%
2007-08 11.9% 1.4% 2.4% 2.5% 4.0% 58.9% 71.4% 1.7% 2.9% 1.9% 1.5%
2008-09 14.1% 2.3% 1.6% 6.0% 8.3% 58.6% 72.2% 1.5% 2.9% 1.5% 1.2%
2009-10 14.1% 2.2% 1.7% 6.5% 9.3% 56.3% 70.6% 1.5% 2.7% 1.3% 0.9%
2010-11 13.4% 2.2% 2.0% 4.8% 6.9% 52.2% 65.6% 1.3% 2.7% 1.4% 1.3%
2011-12 13.1% 2.5% 1.8% 5.9% 7.8% 53.5% 67.4% 1.4% 2.6% 1.3% 1.2%
2012-13 12.5% 2.6% 1.7% 4.9% 6.9% 52.5% 66.7% 1.4% 2.6% 1.4% 1.2%
2013-14 12.2% 2.3% 1.7% 4.5% 6.7% 52.2% 67.1% 1.5% 2.5% 1.2% 1.1%
2014-15 11.8% 2.1% 1.6% 4.1% 6.7% 51.4% 66.6% 1.5% 2.5% 1.2% 1.0%
2015-16 11.2% 1.9% 1.8% 3.9% 6.9% 51.5% 68.2% 1.3% 2.0% 1.6% 0.9%
2016-17 11.0% 1.5% 1.9% 3.5% 6.9% 49.6% 68.9% 1.5% 1.9% 1.9% 0.9%
2017-18 11.0% 1.3% 1.5% 3.5% 5.8% 49.7% 69.8% 1.5% 2.0% 1.2% 0.5%
2018-19 11.3% 1.6% 1.7% 3.3% 6.2% 49.4% 69.8% 1.8% 2.3% 1.2% 0.4%
FY05-09 12.4% 1.6% 2.2% 3.9% 6.2% 61.7% 75.9% 1.4% 2.4% 2.1% 1.4%
FY10-14 13.1% 2.4% 1.8% 5.3% 7.5% 53.3% 67.5% 1.4% 2.6% 1.3% 1.1%
FY15-19 11.2% 1.7% 1.7% 3.6% 6.5% 50.3% 68.6% 1.5% 2.1% 1.4% 0.7%

Source: Fiscal Accounts of the Union Govt, RBI data base.

Contrary to the advice of the CEA at the end of 2009, the Fiscal deficit was not brought back to FRBM
target levels, despite a restoration of GDP Growth to pre-crisis levels in 2010-11. The tax cuts were not
reversed in 2010-11 and despite a windfall from Spectrum auctions, the fiscal deficit was at 4.8% and
then rose back to 5.8% in 2011-12 after the windfall dis-appeared and corporate income and excise tax
revenues tax revenues fell further (table 5). Fiscal prudence was restored during 2014-15 to 2019-20,
with an average expenditure of 11.2% of GDP down from an average of 13.1% of GDP during 2009-10 to
2013-14 and an average of 12.4% during the previous five years. Consequently, the Fiscal deficit of the
Union Govt averaged 3.6% of GDP during FY15-19, down from 5.3% in the previous five years and from
3.9% of GDP in the five years prior to that (Table 5).

20
Figure 7: Central Govt Revenue Expenditure & Fiscal Deficit (% of GDP)

6.5% 14.5%
FD_C(lhs) RevExpC(=>)

6.0% 14.0%

5.5% 13.5%

5.0% 13.0%

4.5% 12.5%

4.0% 12.0%

3.5% 11.5%

3.0% 11.0%

2.5% 10.5%
2004-05

2005-06

2009-10

2010-11

2013-14

2014-15

2015-16

2018-19
2006-07

2007-08

2008-09

2011-12

2012-13

2016-17

2017-18
Source: Fiscal accounts of the Union Government

4.3 Agriculture Growth & Rural Wages

Several economists have argued that Agricultural distress is a major factor in the reduction of GDP
growth in H1 of FY 2020. Agriculture growth has, however, been on a long-term declining trend since
1980, with the linear trend line declining from a little over 4% to a little below 3% in 2013-14 (old series).
Agricultural Growth indeed accelerated during the five year period, 2009-10 to 2013-14, to an average
4.3% per annum, before returning to its long-term trend with an average growth of 2.9% during 2014-15
to 2018-19. This happened despite two successive droughts in FY15 and FY16, a phenomenon which
seems to repeat every 7 years or so (Table 1). Growth during FY2019 was only marginally lower than the
average. The growth in H1 of FY2020 has been about 1% lower than the average, but this can only
explain a GDP growth deceleration of 0.2% points.

As the new series (base 2011-12) separates Agriculture into its two components, Crops and livestock
(for the first time), one can now see that in the last six years the former grew an abysmal 0.6% per
annum, while the latter grew at an average 8% per annum. GDP from Non-crop Agriculture & Allied
grew at an average of 6.2% per annum. Thus, during 2011-12 to 2017-18, Crop agriculture, whose share
in Agriculture & Allied GDP was 65% contributed only 25% of the growth, while Animal husbandry,

21
whose share was 22%, contributed 55% to the growth (of A&A GDP). It is therefore apparent that Crop
agriculture and the policies used for decades to support, protect and promote it need to be thoroughly
reviewed and revised. More particularly, the Wheat-Sugar-Rice model of agricultural growth and the
policies that have supported it for decades have reached a cul-de-sac(dead-end). Low productivity and
high cost (despite substantial input subsidies), make exports unviable/unsustainable, while domestic
consumption demand has run up against sharply reduced income elasticities of demand. So, the result
of higher growth in these three commodities is either falling prices or accumulating stocks resulting in
rotting food and rising interest costs of storage. These funds could be better used to directly protect
farmers and promote A&A growth.

A complete transformation of the policy framework for crop agriculture is essential. The price increase
in crop agriculture as measured by its GDP deflator, fell to 1% in 2017-18 from 8.1% average in the
double drought years and 5.8% in the subsequent two years of normal monsoon recovery. Price inflation
was close to zero in 2018-19 with many crops showing an unprecedent decline in prices (ie deflation).
The CPI (rural) for Sugar, pulses and Fruits showed a decline in prices in 2018-19. Prices of sugar have
declined despite subsidized export of 16.1 MT in 2012-13, 11.1 MT in 2013-14 and 18.9MT in 2014-15.
Stocks of wheat and Rice which were 207 lakh MT at the end of FY04, grew to 356 lakh MT by FY09 and
to 495 lakh MT by FY14. They were 727 lakh MT by FY19 end. These stocks have therefore grown by an
average annual rate of 11.8%, 6.8% and 8% during these three five-year periods. Note that this growth is
despite the subsidized export of 29.5 lakh MT of wheat in 2012-13 and 26.7 lakh MT in 2013-14. Offtake
as a percent of Stocks has declined from 0.69 to 0.47 in the last decade, indicating that stocks are hugely
in excess of any possible contingency. 28

Another hypothesis that has been advanced by economists for the sharp decline in GDP is a decline in
Private consumption due to a lack of growth in rural wages. There was a big change in methodology and
an expansion in the occupations for which rural wage data is collected, starting from November 2013,
which needs to be carefully accounted for. Figure 8, which plots the real average rural wage growth
rate, using rural CPI as deflator, shows that there was a big upswing in growth rates from around July
2010 to around October 2013. Separating the available growth rates into three periods shows that the
growth rate of real rural wages averaged 0.2% per annum from June 1999 to June 2010, accelerated to
8% per annum during July 2010 to October 2013 and then slowed back to 0.7% per annum (Table 6).

Table 6: Real Rural Wages and Agriculture growth

Campaign Against Black Money

Inflation in House Prices: (Compound annual average)
Quarter MUMBAI DELHI BANGALORE LUCKNOW KOLKATA
AHMEDABAD
Q4fy13/09 15.4 16.7 0.2 7.8 11.5 16.6
Q1fy15/11 8.8 14.1 5.9 6.3 15.5 15.2
Q1fy20/15 3.8 3.5 2.2 4.7 7.6 2.3
Source: Calculations based on Labor Bureau, Govt of India, obtained from RBI data base

28
A Technical committee on Buffer stocking norms used to be set up periodically to update norms. The actual
stocks have been so large (2x to 3x of old norms), that no new Technical committee was set up in the last decade
or two.

22
 Correlating these changes with agricultural growth discussed earlier, we find that the changes
correspond broadly to the temporary acceleration GDP growth from agriculture (Table 6). The fact that
in the November 2014 to August 2019 period the deceleration in real wage growth is more than in
Agriculture GDP, suggests that there may be additional reasons (some of which we have discussed
earlier). We delve deeper into the rural wages in the new detailed series which started in 2014 by
dividing them into four sub-categories: Crop Agriculture, non-crop Agriculture & Allied, Construction and
Rest.

Figure 8: Rate of Growth of Avg Rural Male Wage (% yoy)

13

11

1 5 7 0 2 4 7 9 2 4 7 9 2 4 6 9 1 4 6 9 1 3 6 8 1 3 6 8 1 3 5
20 36 36 37 37 37 37 37 38 38 38 38 39 39 39 39 40 40 40 40 41 41 41 41 42 42 42 42 43 43 43
-1

-3

-5

-7

Comparing the average wage growth in each of these categories to what happened in 2018-19 and Q1
of 2019-29, we find an acceleration of wage growth in each category, relative to the average growth in
previous periods. There is therefore no evidence to support the contention that a slowdown of rural
wage growth is responsible for the slowdown in private consumption or GDP growth. We also find that
rural wages appear to be driven by previous two years of growth of GDP from agriculture, while GDP
from agriculture is the biggest driver of Private consumption. We do find however that the

23
Unemployment rate has increased significantly in Q1 of FY2020 (Table 7), so the employment situation
& prospects may have played some role in the growth slowdown in H2 of FY2019 & H1 of FY2020.29

Man-years of employment supplied under MNREGA increased sharply to 73.4 in 2018-19 from an
average of 64.3 during the previous three years (64 in 2017-18, 64.6 in 2016-17 & 64.4 in 2015-16).
However It is unclear what is the effect of MNREGA expenditures.

Table 7: Growth of Rural, Male Wage Rate (real)

Campaign Against Black Money
Inflation in House Prices: (Compound annual average)
Quarter MUMBAI DELHI BANGALORE LUCKNOW KOLKATA
AHMEDABAD
Q4fy13/09 15.4 16.7 0.2 7.8 11.5 16.6
Q1fy15/11 8.8 14.1 5.9 6.3 15.5 15.2
Q1fy20/15 3.8 3.5 2.2 4.7 7.6 2.3
Q4fy13/09 25.6 26.9 10.4 17.9 21.6 26.8
Q1fy15/11 19.2 24.5 16.3 16.7 25.9 25.6

5. Policy and Institutional Reform

The policy reform that will help accelerate the growth recovery to ~ 7.5% potential of the Indian
economy, related to the three broad accumulated problems outlined in earlier sections. Fiscal Institution
and Policy, Monetary & Credit Policy and Institutions, and Incentive structures for Investment exports
and Production.

5.1. Fiscal Policy

The key to effective fiscal reforms, particularly in a period of slow growth is, fiscal changes which are
revenue/expenditure neutral in the long term, because they increase the elasticity of revenues or
reduce the buoyancy of expenditures by increasing their effectiveness, but provide a fiscal boost in the
short term by foregoing some revenues or accelerating some expenditures. In this context the
discussion of Fiscal space is only relevant in the context of FRBM constraints arising from the Debt/GDP
target and the glide path to achieving the Debt targets.

5.1.1. GST simplification

As noted by many economists, an overly complex GST rate structure has hurt Household industry &
trade, and SMEs by raising the cost of compliance. 90% of the countries with VAT have a single rate
structure. This must be the conceptual starting point of the simplification, with a minimal amount of
changes form uniformity, to make the GST equitable and Revenue neutral in the Indian Context. I would
suggest the following approach:

(a) There must be a single uniform rate of GST on all inputs (capital goods, intermediates) into
the production of goods & services, of 15% (say). The same rate should apply to electricity,
construction and oils & refined products, if & when they are brought into the GST. Petrol &
29
Highest correlation of 0.58 as against correlation of 0.36 & 0.34 with MNREGA & rural wages and 0.22 with Food
stock accumulation. Please note that these are in turn driven by Agricultural growth so additional effect is unclear.

24
 Diesel are however, both intermediate & final consumer good (cars, two wheelers),
generating large revenues under the current excise tax and would have a higher rate.
(b) The same rate (15%) should apply to most final consumer goods, with two specific
differences: (i) Basic food, Health services & Education-Schooling (incl Pre-school) should be
exempt to ensure equity. All other exemptions must be eliminated. (ii) A handful of Goods
& services, in which evasion is difficult, raise large revenues & have high income elasticity,
will continue to have a higher rate (25% say), to ensure revenue neutrality.
(c) One (5%) or two more rates can be used for final consumer goods, to facilitate transition.
(d) The Value-Added principle must be understood and applied by the tax collection
machinery. End-use exemptions are a contradiction of this principle and must be abolished.
Compounding also breaks the chain of offsets, particularly if it is done by entities which sell
to or buy from GST registered entities.
If GST is simplified as proposed, both tax compliance & enforcement become very easy &
cheap for Tiny & Small Industry & Trade (TSIT) & MSMEs. The uniform tax eliminates the need
for matching of every invoice by replacing it with matching of total value of sales between each
buyer & seller (a simple matrix structure for accumulated sales value - year to date). It will
greatly incentivize the shift from Black to White economy. It will also make it possible to refund
GST paid by exporters on their inputs on a weekly if not daily basis, imparting a big boost to
exports.

5.1.2. Direct Tax Code (DTC)

The proposed DTC is Very important, for easing & encouraging the shift from Black Economy
to White economy and for leveling the field between Corporates, Small and medium
Enterprises (SME) and Household Enterprises (HHEs). The Corporate law has already been
reformed to reduce the after-tax cost of capital to Companies; the reform of taxes on capital
and business income, which is the core of Direct Tax Code simplification and rationalization, is
vital for SMEs & HHEs.
Tax reductions which are desirable but infeasible given FRBM constraints (ie beyond the
flexibility available in the FRBM), can be phased out as per a pre-announced schedule to reduce
uncertainty. For instance, the issue of elimination of Cess and Surcharges can be separated
from the rest of the DTC reform, which must be done in next budget. Govt can announce a
schedule of phasing out of Cesses & Surcharges between 2020-21 and 2024-25, consistent with
Fiscal roadmap.
An additional tax simplification measure would be an option to taxpayers to switch to a Flat
tax without deductions & exemptions, of the kind proposed by Bhalla & Virmani (2017a b). This
would have minor temporary losses followed by increase in voluntary compliance and higher
buoyancy over the medium-long term. 30

30
http://dravirmani.blogspot.in/2017/01/income-taxt-reform-i-benchmark-flat-tax.html ,
http://dravirmani.blogspot.in/2017/01/income-tax-reform-ii-feasible-negative.html

25
 5.1.3. Reallocation of Govt Expenditure
On the expenditure side, the focus must be in shifting expenditures, to increase effectiveness
and get a bigger bang for the buck in terms of Private consumption demand and impact on GDP
growth. For instance, replacement of Fertilizer subsidies by Direct Cash transfers through PMKY
or other DCT/DBT schemes for rural areas will put money directly in the hands of farmers,
reduce water and land pollution through excess use of fertilizers. Subsidies and expenditures
could also be relocated to quicker completion of ongoing construction projects, and MNREGA in
stressed States.
5.1.4. Over Dues
As already promised by Finance Minister, Union Govt and CPSEs/PSUs should clear all
overdues by March 2020. This is the best way to inject demand into the economy without
affecting the real fiscal deficit. While Fiscal Deficit measured on cash basis will show a one-time
increase, it will either have no effect on Fiscal Deficit on accrual basis. The payments will help
reduce private credit demand and ease flows to others in need of credit. The issue of disputed
payments for Infrastructure and other projects, for example in Highways must also be resolved
expeditiously. The Govt must not routinely question the awards of Dispute resolution bodies
agreed to by itself.
5.1.5. Dis-Investment, FDI, FII
Ensure that as many Strategic sales of CPSE/PSUs as possible occur within 2019-20 i.e. by
31st March 2020. Zero sales in 2019-20, will again dent the credibility of the Govt, whatever the
reason given to justify the delay! Govt should lift restrictions on FDI and FII inflows (HLG
recommendations) and consider issuing a Sovereign bond as proposed in the budget, to ensure
that any increase in the fiscal deficit is financed without an increase in market interest rates.

5.2. Monetary & Credit Policy

5.2.1. Credit System
RBI & Govt must unclog the credit loan channels by dealing with the NPA problem in Banks
and NBFCs. Normalization of NBFC credit channels is particularly important for levelling the
field for Household and Small enterprises. The grid lock between the alternatives should be
broken by adopting a flexible approach fitted to type of borrower & type of Asset (e.g. Bad Bank
for industrial assets, take over & auction of marketable assets like land & real estate, ARC for
Infrastructure). An expert committee could be appointed to formally define which approach to
use for which type of borrower and /or type of asset. Any legal changes required must be made
& implemented quickly.
5.2.2. Monetary Loosening
RBI must reduce the Real Repo rate to zero (or even negative if expected 2020 Q3 < 4.5%)
and accelerate growth of base money supply and aggregate credit. Some of the monetary-
credit action has happened in last 3-6 months, but it must be sustained & credible. Govt should
complement it by increasing the flexibility of Small saving & other interest rates set by it. A
change in the RBI Act to include GDP growth as a subsidiary target for the MPC should be

26
considered, perhaps a Taylor Rule (along the lines of the mandate of the US Federal Reserve
Board).

5.3. Competitiveness & Global Value/Supply Chains

There is a once in a generation opportunity to attract Value/Supply Chains, looking to diversify out of
China, given the heightened uncertainty about its economy, particularly its External trade.

5.3.1. Labor Policy

Amend Industrial Relations Act to improve flexibility. A start can be made by making the 100-
person cut-off for retrenching or dismissing labor, inapplicable in CEZs & SEZ and/or in specific
Labor-intensive industries like Garments.
Introduce Portability & Pvt competition in provision of ESI, PF etc. to reduce labor costs
without reducing benefits.
Amend Apprenticeship Act to facilitate practical, modern, industrial training. The Skill
development corporation has not been successful in supplying the skills currently needed by
industry, for which they cannot find enough workers. Modify rural school curriculum to
promote problem solving & job skills in Agriculture, Processing, and Services.
5.3.2. Land Policy
Even the conversion of Agricultural land to employment generating, low cost housing is a
bureaucratic nightmare. Amend land laws to facilitate creation of Industrial Estates/Clusters,
Housing and Commercial complexes in rural & semi-rural areas, including through “land
pooling” of Rural land. Expand chemicals clusters with environmentally approved pollution
control facilities, so that the chemicals industry can expand quickly to meet the doubling of
orders, arising from diversification of demand away from China.
5.3.3. Agriculture
The Wheat-Sugar-Rice economy & old policies to support it have reached a dead-end. 31 De-
control of internal & external trade in agriculture, rationalize import & export duties is essential
for diversifying the agricultural economy into new products for which there is international
demand or domestic demand can be developed by private companies (e.g. nutritional
vegetable, fruit & coarse cereal snacks). Allow use of low-quality land (fallow or degraded) by
Agriculture Companies!
5.3.4. External Trade
Rationalize EXIM policy, Import Tariffs & Export Duties; replace specific duties on Textiles by
ad-valorem rates, to eliminate corruption in imports, Improve Ease of Doing Business in
External Trade (World Bank Doing Business sub-index).32 We must grab the once-in-generation

31
Essential Commodity Act, Agricultural Produce Marketing Act, Agricultural procurement and stocking by FCI,
Import-Export controls and Quantity restrictions.
32
Among other negative effects high and complex specific duties on Synthetic fibers, yarns and fabrics are responsible for
making non-cotton textiles & garment exports uncompetitive.

27
opportunity for "Make in India," by partly replacing China in Global Manufacturing Supply
chains.
The only certain way to eliminate an inverted customs tariff structure is by moving to a
uniform ad-valorem (%) duty on all imports. This objective can be achieved to a great extent by
imposing a uniform import duty on oil, minerals, manufactured goods and (to the extent
possible) on agricultural raw materials like cotton. The uniform duty would have to be
accompanied by a suspension of the ITA (0 duty) agreement for 3-5 years, to ensure elimination
of inverted duty structure for electronics items covered in ITA.
The focus of FTA agreements should shift to developed countries as these will be most
beneficial for promotion of labor-intensive manufactured exports and Indian entry into Value
Chains. The priority should be on FTAs with EU, UK and USA. In the case of the USA, a
pragmatic compromise will have to be found between USA’s demands on IPR and of India’s
uncompetitive agriculture.33
5.3.5. Infrastructure: Electricity Cost
Amend Electricity Act (2003) to limit cross tax-subsidy by, either (a) banning differential
pricing for different consumers without demonstrated differential in costs of production and
delivery, as this is a monopolistic practice, or (b) Limiting the implicit tax on electricity supplied
to manufacturing industry to certain percent of average cost of production (e.g. 10-15%). A
Central Electricity Distribution Company should be set up to compete with State Electricity
Boards/Companies on a level playing field, and Open access enforced through grants and loans
conditional on such access. The PPP framework for infrastructure must be reformed along the
lines suggested by Kelkar Committee. Govt must accept the awards given by Dispute resolution
bodies, set up by itself as well as by the High courts.

6. Conclusion
Three major sets of policy and institutional changes took place between. Several of these
changes were genuine reforms, while some were clearly not. The three sets covered the areas
of Monetary Policy and Financial Regulation, Fiscal policy and taxation and Un-accounted
Income and Assets. Negative J curve effects were clearly demonstrated in the case of the new
Monetary Policy Framework and Tighter norms and stricter enforcement of Financial
Regulation such as the new Indian Bankruptcy Code (IBC). In the Fiscal sphere, introduction of
the Goods & Services Tax (GST) a major tax reform, also had negative J curve effects, because of
over-complex institutional design and rate structure. Other positive reforms such as FRBM and
Corporate Income tax simplification was overwhelmed by Ad hoc income tax increases to meet
fiscal targets. Institutional changes directed at reducing un-accounted income and Assets
(“Black Money”), though partially successful, also had negative J curve effects, because the
impact of the changes on GDP growth was neither analyzed nor accounted for in institutional

33
The time has also come to accept the invitation of OECD to join the organization, as it is now involved in
designing the architecture of digital taxation, and other issues which will affect us in future.

28
design and implementation. Historical experience in India and abroad suggests, that once
Corruption is institutionalized, Draconian laws are effective for short periods, but are eventually
undermined by even more corruption, given the broader deterioration in enforcement
institutions (policing, conviction, legal). Sustained improvement requires an integrated
examination of both incentives and disincentives (carrots & sticks) and a policy reforms in bot
areas. These three sets of J curve effects interacted to set the stage, with a sharp decline in
GDP triggered by a set of NBFCs defaults & bankruptcy and effective income tax rates in H2 of
2018-19.
The remedial actions taken during 2019-20 by the Union Govt and the RBI have ensured that
GDP growth has bottomed out in Q2 or Q3 of 2019-20. However, the recovery is likely to be U
shaped in contrast to V shaped recoveries seen from the smaller shocks since the Global
Financial Crisis. The issue before us today is therefore the speed of recovery of GDP growth.
The speed of recovery to the previously demonstrated growth potential of about 7.5%, will
depend critically on the correct macro-economic policy mix and economic policy reforms to
remove bottlenecks, reduce bad policies and institute incentives for efficient growth and
productive employment generation. Based on an analysis of the causes of the Growth
slowdown, and the opportunities available domestically and Globally, this note outlines some of
the policies needed to accelerate the recovery.
The authors personal experience of two decades of Economic Policy reforms 34 suggests
several lessons that can be useful in pursuing both policy and institutional reforms.35 One,
consultation and preparation is essential for minimizing the negative effects (J curve) of major
economic policy and institutional reforms. One way to ensure this is to appoint professional
committees, with diverse expertise to consider all aspects, and headed by a bureaucratically-
politically savvy professional. Second, efficient and effective macro management requires a lot
of information, particularly in crisis situations. Openness to information and knowledge is
necessary for keeping the economy on a sustained & sustainable GDP & welfare growth path.
Mechanisms are needed to ensure this. Three, its essential to have a trusted professional with a
macro-economic/ macro-institutional perspective inside the Government, to drive the reform.36
There are powerful vested interests inside and outside the government with access to a great
deal of expertise, which is directed at narrow ends, but can mislead decision makers. Such a
respected professional is essential for bringing in a macro perspective, to separating out the
chaff from the gems of advice that is proffered. Such professionals can also help grab
opportunities when they arrive, by bringing these to the attention of decision makers and
preparing the grounds for quick decisions.

34
1985-2010
35
See Mehra (2019)
36
Either in the PMO or the MOF or both

29
References:
Surjit Bhalla and Arvind Virmani, Income Tax Reform: A Benchmark Flat Tax cum Transfer System,
January 2017. http://dravirmani.blogspot.com/2017/01/income-taxt-reform-i-benchmark-flat-tax.html .

Surjit Bhalla and Arvind Virmani, Income Tax Reform II: A Feasible Negative Income Tax/ Net Income
Transfer (NIT), January 2017. http://dravirmani.blogspot.com/2017/01/income-tax-reform-ii-feasible-
negative.html .

Puja Mehra, “How India’s Growth Story Devolved into Growth Without a Story, Ebury Press, April 2019

Arvind Virmani, “A New Development Paradigm: Employment, Entitlement and Empowerment’, Global
Business Review, International Management Institute, SAGE Publications, Vol. 3, No. 2, July-December,
2002, pp. 222-45. [ NewParadigm4nf ].

Arvind Virmani, “A New Development Paradigm: Employment, Entitlement and Empowerment”, Economic
and Political Weekly, Vol. XXXVII No. 22, June 1-7, 2002, pp. 2145-2154.  [ NewParadigm4nf ].

Arvind Virmani and With Danish Hashim, “The J curve of Productivity and Growth: Indian Manufacturing
Post-Liberalization,” IMF Working Paper, No WP/11/263.  July, 2011.
http://www.imf.org/external/pubs/cat/longres.aspx?sk=25029.0

Arvind Virmani, Danish Hashim and Ajay Kumar, “Impact of Major Liberalisation on Indian
Manufacturing: The J Curve Hypothesis,” Indian Economic Review, Volume 46, Issue Number 1,
2011.
Arvind Virmani, Danish Hashim and Ajay Kumar, “Impact of Major Liberalisation on Indian Manufacturing:
The J Curve Hypothesis,” Working paper No. 5/2009-DEA, Ministry of Finance, September 2009.  
http://www.finmin.nic.in/workingpaper/ProductivityJcurve09sept.pdf ,   
http://www.finmin.nic.in/workingpaper/index.asp.

Arvind Virmani, "Deceleration, De-Monetization and GST: Growth Prospects and Policy Solutions,"
Working Paper No 2/2017, September 2017.  GrowthDeceleration2017sep.docx  .  

30