The Indian Economic Journal, Volume 72, Issue 2, Page 207-219, March 2024.
Agriculture has been brought to the forefront of policymaking, parliamentary debate, and political discussions in recent history. India’s Parliament recently voted to scrap agricultural reform laws which came up as a huge victory for the farmers’ movement, who have been protesting for over a year for the rollback of the laws. This farmers’ movement created history at the national and international levels in the present times. The government had passed three farm laws to transform agriculture and increase farmer income without detailed consultations with all stakeholders. This led to protests by the farmer community by blocking roads and highways, calling an All-India Bandh, which attracted public attention and brought weight to the farmer issues, leading to achievement for the ‘Annadatas’ of the country. The article discusses the predicaments of the agriculture sector, the problems of the farmers, critical analysis of the three Farm laws, their implementation, implications and finally, its rollback. The reasons for this move have been examined from the political and economic angle with a reflection on its rollback for the future.JEL Codes: Q18, Q10, Q13, Q15
Category Archives: The Indian Economic Journal
COVID-19, Economic Package and Indian Stock Market: An Event Analysis
The Indian Economic Journal, Volume 72, Issue 2, Page 303-322, March 2024.
The present study is an attempt to analyse the behaviour of securities around the outbreak of the COVID-19 pandemic and the declaration of an economic package by the government of India. In this study, daily prices of securities constituting the BSE 100 index are considered as these securities are highly traded and their trading impact would immediately reflect on the index. To present a sector-specific analysis, the securities are further classified based on sectors and are analysed using the event study methodology. Average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) for overall market and for each sector have been calculated and their significance have been tested using parametric T-statistics, standardised cross-sectional test and non-parametric sign test. Based on the analysis, the study concluded that it was not the pandemic but the actions towards controlling the pandemic that caused a negative impact on the Indian stock market. The economic package declared by the government of India to boost the economy also turned out to be futile and failed in achieving its objectives. Among the sectors, only the technology sector has been positively impacted by the pandemic. The outcome of the study would be beneficial to the trading community in identifying the sectors/securities that would act as hedging in the pandemic situations.JEL Codes: E44, G1, G14, G18
The present study is an attempt to analyse the behaviour of securities around the outbreak of the COVID-19 pandemic and the declaration of an economic package by the government of India. In this study, daily prices of securities constituting the BSE 100 index are considered as these securities are highly traded and their trading impact would immediately reflect on the index. To present a sector-specific analysis, the securities are further classified based on sectors and are analysed using the event study methodology. Average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) for overall market and for each sector have been calculated and their significance have been tested using parametric T-statistics, standardised cross-sectional test and non-parametric sign test. Based on the analysis, the study concluded that it was not the pandemic but the actions towards controlling the pandemic that caused a negative impact on the Indian stock market. The economic package declared by the government of India to boost the economy also turned out to be futile and failed in achieving its objectives. Among the sectors, only the technology sector has been positively impacted by the pandemic. The outcome of the study would be beneficial to the trading community in identifying the sectors/securities that would act as hedging in the pandemic situations.JEL Codes: E44, G1, G14, G18
History of Economics in the Light of Meghnad Desai’s Poverty of Political Economy
The Indian Economic Journal, Volume 72, Issue 2, Page 389-400, March 2024.
The article discusses some of the major theoretical and practical matters that the discipline of Economics has been grappling with from the times of Adam Smith down to Keynes. The publication of Meghnad Desai’s Poverty of Political Economy turns out to be an occasion or inspiration to revisit these ideas—the article is organised as a review article of the book.JEL Codes: B0, B1, B2, B3
The article discusses some of the major theoretical and practical matters that the discipline of Economics has been grappling with from the times of Adam Smith down to Keynes. The publication of Meghnad Desai’s Poverty of Political Economy turns out to be an occasion or inspiration to revisit these ideas—the article is organised as a review article of the book.JEL Codes: B0, B1, B2, B3
Impact of Foreign Aid on Economic Growth of Ethiopia
The Indian Economic Journal, Ahead of Print.
This study examines the impact of foreign aid on growth in Ethiopia based on time series data from 1980 to 2019. This study uses Autoregressive distributed Lag and an Error Correction to determine the long- and short-run impacts of foreign aid on growth. The empirical results show that, in the long run, foreign aid has a negative and insignificant effect on real GDP growth. However, gross domestic savings, exports, and inflation exert positive and insignificant impacts on GDP growth. Furthermore, Human capital and gross consumption expenditure exert a positive and significant impact on GDP growth, and gross capital information has a negative and significant impact on GDP growth. Thus, Ethiopia’s national development policy should focus on the productive utilisation of domestic savings to increase GDP growth rather than depend on external capital inflow, which is uncertain even when donor countries face long recessions.JEL Codes: E1, E2, E3
This study examines the impact of foreign aid on growth in Ethiopia based on time series data from 1980 to 2019. This study uses Autoregressive distributed Lag and an Error Correction to determine the long- and short-run impacts of foreign aid on growth. The empirical results show that, in the long run, foreign aid has a negative and insignificant effect on real GDP growth. However, gross domestic savings, exports, and inflation exert positive and insignificant impacts on GDP growth. Furthermore, Human capital and gross consumption expenditure exert a positive and significant impact on GDP growth, and gross capital information has a negative and significant impact on GDP growth. Thus, Ethiopia’s national development policy should focus on the productive utilisation of domestic savings to increase GDP growth rather than depend on external capital inflow, which is uncertain even when donor countries face long recessions.JEL Codes: E1, E2, E3
Renewable Energy and Economic Growth: Evidence from India
The Indian Economic Journal, Volume 72, Issue 2, Page 220-242, March 2024.
This article examines the nexus between economic growth and two renewable energy sources, namely wind and solar, to separate out the contrast between these two sources, for India deploying system generalised method of moments and vector error correction method suitable to capture the dynamic nature of panel data. Unlike most of the earlier studies, it takes into account cross-sectional dependence and addresses the issue of endogeneity. India has been chosen because despite India being one of the largest producers of renewable energy globally; the nexus is under-studied. This article finds the installation of solar energy capacity positively influences the Gross State Domestic Product (GSDP) growth. Moreover, there is a bi-directional positive relation between the installation of wind energy capacity and GSDP growth. Hence the adoption of renewable energy is helping the states to grow faster. However, the study found not much difference in the nature of the nexus between solar energy growth and wind energy growth for India.JEL Codes: O13, P28, P44, Q56
This article examines the nexus between economic growth and two renewable energy sources, namely wind and solar, to separate out the contrast between these two sources, for India deploying system generalised method of moments and vector error correction method suitable to capture the dynamic nature of panel data. Unlike most of the earlier studies, it takes into account cross-sectional dependence and addresses the issue of endogeneity. India has been chosen because despite India being one of the largest producers of renewable energy globally; the nexus is under-studied. This article finds the installation of solar energy capacity positively influences the Gross State Domestic Product (GSDP) growth. Moreover, there is a bi-directional positive relation between the installation of wind energy capacity and GSDP growth. Hence the adoption of renewable energy is helping the states to grow faster. However, the study found not much difference in the nature of the nexus between solar energy growth and wind energy growth for India.JEL Codes: O13, P28, P44, Q56
Economic Policy Uncertainty and Equity Fund Flows to India: A Bayesian Approach
The Indian Economic Journal, Volume 72, Issue 2, Page 259-269, March 2024.
We compare the impacts of economic policy uncertainty (EPU) and global economic policy uncertainty (GEPU)-related shocks on equity fund flows (EFFs) to India using a Bayesian vector autoregression approach. We find that (a) Indian EPU and GEPU are strongly and negatively related to EFF; (b) EFF are more sensitive to GEPU relative to Indian EPU; (c) evidence of trend-chasing behaviour by fund managers in India; and (d) GEPU is an important factor for forecasting returns on the Bombay Stock Exchange. Taken together, our findings indicate that EPU is important to understanding equity allocation decisions and returns in India.JEL Codes: F21, F39, G11
We compare the impacts of economic policy uncertainty (EPU) and global economic policy uncertainty (GEPU)-related shocks on equity fund flows (EFFs) to India using a Bayesian vector autoregression approach. We find that (a) Indian EPU and GEPU are strongly and negatively related to EFF; (b) EFF are more sensitive to GEPU relative to Indian EPU; (c) evidence of trend-chasing behaviour by fund managers in India; and (d) GEPU is an important factor for forecasting returns on the Bombay Stock Exchange. Taken together, our findings indicate that EPU is important to understanding equity allocation decisions and returns in India.JEL Codes: F21, F39, G11
Impact of Product and Process Adoption Strategies on Business Expectations: Evidence from India During the Pandemic
The Indian Economic Journal, Volume 72, Issue 2, Page 323-339, March 2024.
Using a unique survey of Indian firms conducted in June 2020, we analyse whether innovating into a new product line or adapting e-commerce platforms improved business outlook. A structural equation framework is used to address the endogenous relationship between six-month advance expectations of key demand (new orders) and supply (labour costs and raw material costs) variables to the two innovation strategies. Innovation strategies are in turn determined by unobservable latent variables, that is, shocks experienced due to the COVID-19-associated national lockdown. Both innovation strategies had a positive and significant impact on demand-side sentiments but had a mixed impact on the supply side.JEL Codes: M21, O31
Using a unique survey of Indian firms conducted in June 2020, we analyse whether innovating into a new product line or adapting e-commerce platforms improved business outlook. A structural equation framework is used to address the endogenous relationship between six-month advance expectations of key demand (new orders) and supply (labour costs and raw material costs) variables to the two innovation strategies. Innovation strategies are in turn determined by unobservable latent variables, that is, shocks experienced due to the COVID-19-associated national lockdown. Both innovation strategies had a positive and significant impact on demand-side sentiments but had a mixed impact on the supply side.JEL Codes: M21, O31
Unveiling the Relationship Between Oil Price and Exchange Rate: New Insight from Time-varying Versus Fixed Coefficient Cointegration
The Indian Economic Journal, Ahead of Print.
This study provides a brief analysis of time-varying cointegration between the INR–USD bilateral exchange rate and Brent crude oil prices in the post–subprime crisis period. Prior studies established this relationship using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not be feasible. To address this issue and to go beyond the restrictive time-invariant environment, we employed the time-varying cointegration framework of Bierens and Martins (2010), which was assessed through orthogonal Chebyshev time polynomials. The result shows that the Rupee was decoupled from oil price shocks in the first two samples. However, the oil price pass-through effect will become stronger in the third and fourth samples. The endogenous structural break test suggests the presence of serious parameter instabilities due to fluctuations in oil prices and the exchange rate over the period under study. This indicates the ability of international crude oil prices to influence domestic economic activities through the exchange rate. Policymakers should consider this factor while making monetary and foreign exchange policies.JEL Codes: E44, G14, G15
This study provides a brief analysis of time-varying cointegration between the INR–USD bilateral exchange rate and Brent crude oil prices in the post–subprime crisis period. Prior studies established this relationship using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not be feasible. To address this issue and to go beyond the restrictive time-invariant environment, we employed the time-varying cointegration framework of Bierens and Martins (2010), which was assessed through orthogonal Chebyshev time polynomials. The result shows that the Rupee was decoupled from oil price shocks in the first two samples. However, the oil price pass-through effect will become stronger in the third and fourth samples. The endogenous structural break test suggests the presence of serious parameter instabilities due to fluctuations in oil prices and the exchange rate over the period under study. This indicates the ability of international crude oil prices to influence domestic economic activities through the exchange rate. Policymakers should consider this factor while making monetary and foreign exchange policies.JEL Codes: E44, G14, G15
Analysis of Variation in Foreign Inflows by Different Categories of Foreign Portfolio Investors
The Indian Economic Journal, Volume 72, Issue 2, Page 270-286, March 2024.
The liberalisation of Indian financial markets has smoothened the capital flows of international institutional investors, resulting in rising foreign investor participation in the domestic equity and debt markets. Since the reforms of the 1990s, India has become one of the favourite investment hubs of foreign institutional investors (FIIs) across the globe. The research aims to analyse the variation in contribution to foreign inflows by the three different categories of foreign portfolio investments (FPIs) and the determinants of inflows of the categories of FPIs. The study is based on the use of secondary data collected from the National Securities Depository Limited and the Securities Exchange Board of India. One-way ANOVA has been employed to examine the variation in inflows by different categories of FIIs. Autor regressive distributed lag model has been used to understand the factors determining the inflows of FPIs. The results of the study revealed that there exists variation in the inflows of investments among the different categories of FIIs. The variation in inflows by different categories into equity instruments was significant, while the inflows into debt instruments were not significant. Furthermore, the highest inflows were seen from the second category of FIIs.JEL Codes: C32, G2
The liberalisation of Indian financial markets has smoothened the capital flows of international institutional investors, resulting in rising foreign investor participation in the domestic equity and debt markets. Since the reforms of the 1990s, India has become one of the favourite investment hubs of foreign institutional investors (FIIs) across the globe. The research aims to analyse the variation in contribution to foreign inflows by the three different categories of foreign portfolio investments (FPIs) and the determinants of inflows of the categories of FPIs. The study is based on the use of secondary data collected from the National Securities Depository Limited and the Securities Exchange Board of India. One-way ANOVA has been employed to examine the variation in inflows by different categories of FIIs. Autor regressive distributed lag model has been used to understand the factors determining the inflows of FPIs. The results of the study revealed that there exists variation in the inflows of investments among the different categories of FIIs. The variation in inflows by different categories into equity instruments was significant, while the inflows into debt instruments were not significant. Furthermore, the highest inflows were seen from the second category of FIIs.JEL Codes: C32, G2
Inefficiency Analysis of Tax Efforts in Special Category States of India: Evidence from a Stochastic Frontier Model
The Indian Economic Journal, Ahead of Print.
The current article examines the tax efforts of India’s main mountainous states that have been accorded special category status by the National Development Council. These states have been under persistent budgetary pressure and are partially reliant on central funds in the form of grants in ‘aid’ and other central transfers. The present article employs the Stochastic Frontier Analysis (SFA) model to assess ‘tax effort’ of special category states. The model results implied that ‘tax effort’ rises with increase in the share of secondary sector, revenue expenditure and road infrastructure. Further, the level of debt lowers ‘tax effort’, whereas the introduction of FRBM and Goods and Service Tax Regime (GST) has raised the inefficiency in own tax mobilization. On the basis of tax effort index, computed through John Drew (JLMS) methodology, this study also indicates that Assam, Uttarakhand, and Jammu and Kashmir are in a far better position in tax efforts score compared to the north eastern special category states.JEL Codes: H2, H21, H22, H71
The current article examines the tax efforts of India’s main mountainous states that have been accorded special category status by the National Development Council. These states have been under persistent budgetary pressure and are partially reliant on central funds in the form of grants in ‘aid’ and other central transfers. The present article employs the Stochastic Frontier Analysis (SFA) model to assess ‘tax effort’ of special category states. The model results implied that ‘tax effort’ rises with increase in the share of secondary sector, revenue expenditure and road infrastructure. Further, the level of debt lowers ‘tax effort’, whereas the introduction of FRBM and Goods and Service Tax Regime (GST) has raised the inefficiency in own tax mobilization. On the basis of tax effort index, computed through John Drew (JLMS) methodology, this study also indicates that Assam, Uttarakhand, and Jammu and Kashmir are in a far better position in tax efforts score compared to the north eastern special category states.JEL Codes: H2, H21, H22, H71